The Econometric Foundations of Hedonic Elementary Price Indices

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The Econometric Foundations of Hedonic Elementary Price Indices

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Hans Wolfgang Brachinger () (Department of Quantitative Economics)
Michael Beer () (Department of Quantitative Economics)

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Abstract

Hedonic methods are currently considered state-of-the-art for handling quality changes when compiling consumer price indices. The present article proposes first a mathematical description of characteristics and of elementary aggregates. In a following step, a hedonic econometric model is formulated and hedonic elementary population indices are defined. These indices extend from simple indices based on some average quality to universal formulae that incorporate the full quality spectrum of the respective elementary aggregate. We emphasise that population indices are unobservable economic parameters that need to be estimated by suitable sample indices. It is shown that most of the hedonic elementary index formulae used in practice are sample versions of particular hedonic elementary population indices.

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Paper provided by Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland in its series DQE Working Papers with number 12.

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Length: 19 pages
Date of creation: 24 Apr 2009
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Handle: RePEc:fri:dqewps:wp0012

Note: Room document at the 11th Ottawa Group meeting (Neuchâtel 2009)
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Find related papers by JEL classification:
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-05-23 (All new papers)

References listed on IDEAS
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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)
Curry, Bruce & Morgan, Peter & Silver, Mick, 2001. "Hedonic Regressions: Mis-specification and Neural Networks," Applied Economics, Taylor and Francis Journals, vol. 33(5), pages 659-71, April. [Downloadable!] (restricted)
Silver, Mick & Heravi, Saeed, 2007. "Why elementary price index number formulas differ: Evidence on price dispersion," Journal of Econometrics, Elsevier, vol. 140(2), pages 874-883, October. [Downloadable!] (restricted)

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This page was last updated on 2009-11-1.

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