Constructing quality-adjusted price indices: 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. We compare two methods in this paper which can be used to correct for quality change bias, namely the hedonic method and a method based on the use of discrete choice models. We compare the underlying micro-economic models of the two methods as well as their empirical implementation. Although the discrete choice model has not been used often to calculate quality-adjusted price indices, past research shows that it might be beneficial to do so. JEL Classification: C43, D11, D21, C25
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0172.
Date of creation: Sep 2002
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Other versions of this item:
- N. Jonker, 2001. "Constructing Quality Adjusted Price Indexes: a Comparison of Hedonic and Discrete Choice Models," WO Research Memoranda (discontinued) 673, Netherlands Central Bank, Research Department.
- 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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