| Summary: | Approved for public release; distribution in unlimited. === In June 1995, an unexpected decrease in COLA index on the Kanto Plain of Japan, to include the Yokosuka area, caused concern amongst service members stationed in this area. The purchasing power of the dollar was in decline when compared to the yen and all other economic indicators at the time of the COLA decrease suggested that the COLA index should have increased or at least remained constant. What explains the apparent inconsistency between the declining value of the dollar relative to the yen and the concurrent decrease in COLA provided to service members? This thesis conducted a critical analysis of the procedures and methods used by the Per Diem, Travel and Transportation Allowance Commiflee (PDTATAC) to calculate the cost of living allowance (COLA) index and determine the cause and effect of the June 1995 decrease in COLA index. This thesis addressed the policies of the COLA system, utilizing both historical data and a stylized model, to determine if they are equitable from an economic standpoint. The analysis revealed that the Living Pattern Survey (LPS) was a viable tool to obtain information on where service members made purchases, if exchange rates were stable. If exchange rates were increasing, the LPS prevented overpayment of service members. If exchange rates were declining, the LPS reduced the 'purchasing power' of service members
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