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Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models

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Author Info
Nicole Jonker (University of Amsterdam (UVA), 1018 WB Amsterdam, Netherlands.)

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Abstract

The 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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Paper provided by European Central Bank in its series Working Paper Series with number 172.

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Length: 34 pages
Date of creation: Sep 2002
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Handle: RePEc:ecb:ecbwps:20020172

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Related research
Keywords: Consumer price index; consumer behaviour; firm behaviour; discrete choice models.;

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References listed on IDEAS
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.:
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  2. Annabelle Mourougane & Moreno Roma, 2002. "Can confidence indicators be useful to predict short term real GDP growth?," Working Paper Series 133, European Central Bank. [Downloadable!]
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  4. Alexei Onatski & Noah Williams, 2002. "Modeling model uncertainty," Discussion Papers 0203-05, Columbia University, Department of Economics. [Downloadable!]
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  17. Livio Stracca, 2002. "The optimal allocation of risks under prospect theory," Working Paper Series 161, European Central Bank. [Downloadable!]
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  27. Simone Manganelli, 2002. "Duration: volume and volatility impact of trades," Working Paper Series 125, European Central Bank. [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. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank. [Downloadable!]
  2. John K. Dagsvik, Astrid L. Mathiassen and Bengt J.Eriksson, 2006. "Quality adjusted price indexes for discrete goods," Discussion Papers 490, Research Department of Statistics Norway. [Downloadable!]
  3. C. Deligiorgi & A. Vavoulas & Ch. Michalakelis & D. Varoutas & Th. Sphicopoulos, 2007. "On the construction of price index and the definition of factors affecting tariffs of ADSL connections across Europe," Netnomics, Springer, vol. 8(1), pages 171-183, October. [Downloadable!] (restricted)
  4. Lutz Kilian & Atsushi Inoue, 2003. "On the selection of forecasting models," Working Paper Series 214, European Central Bank. [Downloadable!]
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