The stochastic approach to indeX number theory views each commodity price change as an independent observation on the underlying rate of inflation, so that inflation can be estimated by averaging over all the prices. This paper extends the approach by (i) allowing for sustained changes in relative prices; (ii) showing the link with Divisia index numbers; and {iii) deriving standard errors for the inflation estimates. The results are illustrated with Australian data. Index numbers; inflation.

Increasing income brings about a decline in the relative importance of food consumption, a wider spread of spending patterns and a demand for higher-quality goods. Using an index-number approach, this article analyses these three closely related tendencies. Stripping out the impact of prices from the dispersion of food * For helpful comments and suggestions, we thank the Editor and three referees. We would also like to

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In this paper is presented an analysis of the consumption patterns of beer, wine and spirits for Australia using data for the period 1955/561985/86. The validity of the demand theory hypotheses demand homogeneity and Slutsky symmetry has been tested using recently developed distribution-free procedures. The findings were that (i) beer and wine were necessities and spirits a strong luxury; (ii) beer and spirits are specific complements; and (iii) the homogeneity and symmetry hypotheses are acceptable. Preference for wine consumption seems to be independent of preference for beer and spirits. In trod uctionThe consumption of alcoholic beverages is of interest to economists for at least three reasons. First, there is the basic challenge to analyse the extent to which alcohol consumption is amenable to economic analysis. Second, in many countries alcohol is heavily taxed. This raises interesting issues in public finance such as the welfare cost of these taxes, optimal taxation and externalities. Third, in many cases alcohol data are better than most as their basic source is the tax collection records,The application of the system-wide approach was initiated by Clements and Johnson (1983) who estimated demand equations for beer, wine and spirits. Other studies on this area include Adrian and Ferguson (1987), Clements and E. A. Selvanathan (1987), Duffy (1987), Fuss and Waverman (1987), Heien and Pompelli (1989), Holm (1989), Johnsonetal. (1990, Jones (1989), Pearce (1986), Penm (1988, Quek (1988>, E. A. Selvanathan (1988) andWong (1988). In this paper previous research on alcohol is extended in a number of directions.These extensions include the use of new distribution-free procedures (which do not require any asymptotic theory) to test the validity of the hypotheses of demand homogeneity and Slutsky symmetry; the identification of a structure of preferences whereby wine consumption * This paper is a shorter version of Clements and S . Selvanathan (1989). which is available on request. We would like to acknowledge the help of Chen Dongling and comments from Donald MacLaren, David Johnson and an anonymous referee. 209 0

This paper shows how the system-wide approach to demand analysis can be utilized in marketing. In the context of the Rotterdam model, we describe how the approach can be applied to narrowly defined groups of goods (such as beer, wine and spirits) to estimate income and price elasticities of demand. The paper also provides extensions to deal with advertising and introduces a new way of identifying market structure.consumer demand, advertising, market structure

This paper applies the analytical framework of the monetary approach to exchange rate determination to the analysis of the Dollar/Pound exchange rate during the first part of the 1920's. The analysis uses monthly data up to the return of Britain to gold in 1925. The equilibrium exchange rate is shown to be influenced by both real and monetary factors which operate through their influence on the relative demands and supplies of monies. Special attention is given to examination of the relationship between exchange rates and the relative price of traded to non-traded goods. In the empirical work the prices of traded goods are proxied by the wholesale price indices and the prices of non-traded are proxied by wages. One of the key findings of the paper is the estimate of the elasticity of the exchange rate with respect to the relative price of traded to non-traded goods. This elasticity is estimated with high precision and is shown to be .415 which provides an independent measure of the relative share of spending on non-traded goods. This estimate is consistent with other estimates obtained in studies of expenditure shares. The paper concluded with a dynamic simulation which indicates the satisfactory quality of the predective ability of the model.

The hypothesis of additive utility (or preference independence) is often applied to the demand for broad aggregates. Recent testing provides some evidence favourable to the hypothesis, thus overturning the older results based on the standard asymptotic tests which are seriously biased against the null in small samples. Using data for seven countries and a variety of tests, this paper shows that preference independence also cannot be rejected for more narrowly defined commodities - beer, wine and spirits. The implications of the results for efficient taxation of alcoholic beverages are also explored.