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New Goods and Index Members: U.S. Import Prices

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  • Feenstra
  • R.C.

Abstract

Researchers constructing index number frequently face the problem of new (or disappearing) goods, for which the price and quantity are not available in some periods. In theory, the correct way to handle a new good is to treat its price before it appears as equal to the reservation price (i.e., where demand is zero); in practice, this method can be difficult to implement. However, if the underlying aggregator function is CES then the reservation price is infinity, and we show that the corresponding price index takes on a very sensible form. We apply this formula to measure the price index for six disaggregate U.S. imports, which have been supplied from many new countries over the past several decades. We find that by incorporating the new supplying countries, the price index for developing countries is significantly lower than would otherwise be measured.

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Bibliographic Info

Paper provided by California Davis - Institute of Governmental Affairs in its series Papers with number 371.

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Length: 37 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:caldav:371

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Postal: UNIVERSITY OF CALIFORNIA DAVIS, INSTITUTE OF GOVERNMENTAL AFFAIRS, RESEARCH PROGRAM IN APPLIED MACROECONOMICS AND MACRO POLICY, DAVIS CALIFORNIA 95616 U.S.A.

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Keywords: economic theory ; prices;

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References

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  1. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May.
  2. Krugman, Paul, 1989. "Differences in income elasticities and trends in real exchange rates," European Economic Review, Elsevier, vol. 33(5), pages 1031-1046, May.
  3. 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..
  4. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  5. Makoto Ohta & Zvi Griliches, 1976. "Automobile Prices Revisited: Extensions of the Hedonic Hypothesis," NBER Chapters, in: Household Production and Consumption, pages 325-398 National Bureau of Economic Research, Inc.
  6. Feenstra, R. & Markusen, J.R., 1991. "Accounting for Growth with New Inputs," Papers 380, California Davis - Institute of Governmental Affairs.
  7. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
  8. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  9. White, Halbert, 1980. "Nonlinear Regression on Cross-Section Data," Econometrica, Econometric Society, vol. 48(3), pages 721-46, April.
  10. Peter Hooper, 1989. "Exchange rates and U.S. external adjustment in the short run and the long run," International Finance Discussion Papers 346, Board of Governors of the Federal Reserve System (U.S.).
  11. Kravis, Irving B, 1984. "Comparative Studies of National Incomes and Prices," Journal of Economic Literature, American Economic Association, vol. 22(1), pages 1-39, March.
  12. Grossman, Gene M, 1982. "Import Competition from Developed and Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 271-81, May.
  13. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  14. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  15. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
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Cited by:
  1. Jean Imbs & Isabelle Méjean, 2009. "Elasticity optimism," Working Papers hal-00362403, HAL.
  2. Bernard Fingleton & Miguel Gómez-Antonio, 2009. "Analysing the impact of public capital stock using the NEG wage equation: a panel data approach," Working Papers 0912, University of Strathclyde Business School, Department of Economics.
  3. Feenstra, Robert C & Markusen, James R, 1994. "Accounting for Growth with New Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 429-47, May.
  4. Lukas Mohler, 2009. "Globalization and the Gains from Variety: The Case of a Small Open Economy," FIW Working Paper series 031, FIW.
  5. Zvi Griliches, 1997. "The Commission Report on the Consumer Price Index (panel discussion)," Review, Federal Reserve Bank of St. Louis, issue May, pages 169-173.
  6. Corbo, Vesna & Osbat, Chiara, 2012. "Optimism bias? The elasticity puzzle in international economics revisited," Working Paper Series 1482, European Central Bank.
  7. Corbo, Vesna & Osbat, Chiara, 2013. "Trade adjustment in the European Union - a structural estimation approach," Working Paper Series 1535, European Central Bank.

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