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Apparel Prices 1914-93 and the Hulten/Bruegel Paradox

In: Price Index Concepts and Measurement

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  • Robert J. Gordon

Abstract

Backcasting upward bias in price index over long periods of time yields levels of real consumption two or four centuries ago that are implausibly low, raising the possibility that price index bias for important products may have been zero or even negative at some point in the past. This paper studies apparel prices over the long period 1914-93, developing new price indexes based on more than 16,000 data observations from the Sears catalog for that interval. The basic conclusion is that hedonic price indexes for womens' dresses exhibit a rate of increase of many orders of magnitude faster than either the Sears Matched-model index developed from the same source data or as compared to the CPI. The results provided here offer a complement to past research on computer prices, which also found that price changes were contemporaneous with model changes. Just as hedonic price indexes for computers almost always drop faster than matched-model indexes for computers, we have found the opposite relationship for apparel prices, although presumably for the same reason. The Sears matched-model indexes do not exhibit a consistent negative or positive drift relative to the CPI. For womens' apparel the drift is always negative but for mens' apparel there is a turnaround, from negative before 1965 to positive thereafter. Both the matched- model indexes and the CPI rise less rapidly for womens' apparel than for mens' apparel, which would be consistent with the hypothesis that price changes accompanying model changes (and thus linked out of both the Sears matched-model index and of the CPI but not in the hedonic index) are more frequent for womens' apparel, since models change more frequently.

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This chapter was published in:

  • W. Erwin Diewert & John S. Greenlees & Charles R. Hulten, 2009. "Price Index Concepts and Measurement," NBER Books, National Bureau of Economic Research, Inc, number diew08-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 5071.

    Handle: RePEc:nbr:nberch:5071

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    1. Robert J. Gordon, 1987. "The Postwar Evolution of Computer Prices," NBER Working Papers 2227, National Bureau of Economic Research, Inc.
    2. Mark Doms & Ana Aizcorbe & Carol Corrado, 2003. "When do matched-model and hedonic techniques yield similar measures?," Working Paper Series, Federal Reserve Bank of San Francisco 2003-14, Federal Reserve Bank of San Francisco.
    3. Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 936-53, December.
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    Cited by:
    1. Lindé, Jesper, 2001. "Estimating New-Keynesian Phillips Curves: A Full Information Maximum Likelihood Approach," Working Paper Series 129, Sveriges Riksbank (Central Bank of Sweden), revised 30 Apr 2001.
    2. Alcalá, Francisco, 2009. "Time, Quality and Growth," UMUFAE Economics Working Papers, DIGITUM. Universidad de Murcia 4811, DIGITUM. Universidad de Murcia.
    3. Robert J. Gordon, 2006. "The Boskin Commission Report: A Retrospective One Decade Later," International Productivity Monitor, Centre for the Study of Living Standards, Centre for the Study of Living Standards, vol. 12, pages 7-22, Spring.
    4. Martin Neil Baily, 2006. "Policy Implications of the Boskin Commission Report," International Productivity Monitor, Centre for the Study of Living Standards, Centre for the Study of Living Standards, vol. 12, pages 74-83, Spring.
    5. David E. Lebow & Jeremy B. Rudd, 2006. "Inflation measurement," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-43, Board of Governors of the Federal Reserve System (U.S.).

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