The purpose of this paper is to present true cost of living indices derived from specific expenditure
systems, and specifically from the LES, GLES and DGLES systems. According to
Frisch [2] index numbers are classified into two categories: "statistical" and "functional". The
former are purely descriptive statistics without any direct theoretical underpinning, while the latter
are based on a formal theory and a precise theoretical interpretation. Here we present the
advantage of the true cost of living index compared to the Laspeyre (statistical) index. Going a
step further we show the advantage of using "dynamic" true cost of living index instead of using
a "static" one. Finally by using the DGLES model to construct a dynamic true cost of living index
we introduce habit formation hypothesis and changes in relative prices into these indices.
(EN)
University of Peiraeus
