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Quality adjustment of European price statistics and the role for hedonics

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Author Info
Henning Ahnert () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Geoff Kenny () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Abstract

In this paper we review the well-known problem of how to measure price developments when the quality of the underlying goods and services is changing over time. The importance of appropriate methods to take account of quality change is highlighted from the perspective of monetary policy. In particular, we highlight the need for credible and transparent price indicators. In this context, we review the hedonic approach to calculating quality-adjusted price indices and assess the available information on their effects as well as their potential for improving credibility and comparability. Current practices as regards quality adjustment in the European Union (EU) are also discussed, with particular emphasis on the Harmonised Index of Consumer Prices (HICP). Overall, we give a qualified endorsement of hedonics for specific product categories and make some suggestions about how the work on quality adjustment in the EU can be further developed, focusing in particular on the role of hedonics.

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Paper provided by European Central Bank in its series Occasional Paper Series with number 15.

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Length: 34 pages
Date of creation: May 2004
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Handle: RePEc:ecb:ecbops:20040015

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Feenstra, R.C., 1995. "Exact Hedonic Price Indexes," Department of Economics 95-11, California Davis - Department of Economics.
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  2. Diego Rodriguez-Palenzuela & Mark A. Wynne, 2002. "Measurement bias in the HICP: what do we know, and what do we need to know?," Working Paper Series 131, European Central Bank. [Downloadable!]
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  3. Nicole Jonker, 2002. "Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models," Working Paper Series 172, European Central Bank. [Downloadable!]
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  4. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  5. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank. [Downloadable!]
  6. Peter J. Klenow, 2003. "Measuring consumption growth: the impact of new and better products," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 10-23. [Downloadable!]
  7. Triplett, Jack E, 2001. "Should the Cost-of-Living Index Provide the Conceptual Framework for a Consumer Price Index?," Economic Journal, Royal Economic Society, vol. 111(472), pages F311-34, June. [Downloadable!] (restricted)
  8. Brent R. Moulton, 2001. "The Expanding Role of Hedonic Methods in the Official Statistics of the United States," BEA Papers 0014, Bureau of Economic Analysis. [Downloadable!]
  9. Charles R. Hulten, 1997. "Quality change in the CPI," Review, Federal Reserve Bank of St. Louis, issue May, pages 87-100. [Downloadable!]
  10. Gordon, Robert J & Griliches, Zvi, 1997. "Quality Change and New Products," American Economic Review, American Economic Association, vol. 87(2), pages 84-88, May. [Downloadable!] (restricted)
  11. Bart Hobijn, 2001. "Is equipment price deflation a statistical artifact?," Staff Reports 139, Federal Reserve Bank of New York. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence Dynamics of a Transition Economy: The Case of the Czech Republic," IMF Working Papers 07/116, International Monetary Fund. [Downloadable!]
  2. Fernando Gonzalez & François Haas & Ronald Johannes & Mattias Persson & Liliana Toledo & Roberto Violi & Martin Wieland & Carmen Zins, 2004. "Market dynamics associated with credit ratings - a literature review," Occasional Paper Series 16, European Central Bank. [Downloadable!]
  3. Jochen Hartwig, 2005. "On misusing National Accounts data for governance purposes," KOF Working papers 05-101, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  4. Jan Bruha & Jirí Podpiera, 2007. "Transition economy convergence in a two-country model - implications for monetary integration," Working Paper Series 740, European Central Bank. [Downloadable!]
  5. Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence of a Transition Economy: The Case of the Czech Republic," Working Papers 2007/3, Czech National Bank, Research Department. [Downloadable!]
  6. Angela Maddaloni & Darren Pain, 2004. "Corporate ‘excesses’ and financial market dynamics," Occasional Paper Series 17, European Central Bank. [Downloadable!]
  7. Jan Bruha & Jiri Podpiera, 2007. "Inquiries on dynamics of transition economy convergence in a two-country model," Working Paper Series 791, European Central Bank. [Downloadable!]
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