Constructing Quality Adjusted Price Indexes: a Comparison of Hedonic and Discrete Choice Models
AbstractThe Boskin report (1996) concluded that the US consumer price index (CPI) overestimated the inflation by 1.1 percentage points. This was due to several measurement errors in the CPI. One of them is called quality change bias. In this paper two methods are compared which can be used to eliminate quality change bias, namely the hedonic method and a method based on the use of discrete choice models. The underlying micro-economic fundations of the two methods are compared as well as their empirical implementation. Although the discrete choice model has not often been used in order to calculate quality adjusted price indexes it seems to be quite promising to do so.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 673.
Date of creation: 2001
Date of revision:
logit models; cpi; consumenter behaviour; producer behaviour;
Other versions of this item:
- Nicole Jonker, 2002. "Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models," Working Paper Series 172, European Central Bank.
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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