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A Comparison of Weighted Time-Product Dummy and Time Dummy Hedonic Indexes

Author

Listed:
  • Jan de Haan

    (Division of Corporate Services, IT and Methodology, Statistics Netherlands)

  • Rens Hendriks

    (Statistics for Development Division, Pacific Community (SPC))

  • Michael Scholz

    (University of Graz)

Abstract

This paper compares two model-based multilateral price indexes: the time- product dummy (TPD) index and the time dummy hedonic (TDH) index, both estimated by expenditure-share weighted least squares regression. The TPD model can be viewed as the saturated version of the underlying TDH model, and we argue that the regression residuals are ``distorted towards zero'' due to overfitting. We decompose the ratio of the two indexes in terms of average regression residuals of the new and disappearing items (plus a third component that depends on the change in the matched items' normalized expenditure shares). The decomposition explains under which conditions the TPD index suffers from quality-change bias or, more generally, lack-of-matching bias. An example using scanner data on men's t-shirts illustrates our theoretical framework.

Suggested Citation

  • Jan de Haan & Rens Hendriks & Michael Scholz, 2016. "A Comparison of Weighted Time-Product Dummy and Time Dummy Hedonic Indexes," Graz Economics Papers 2016-13, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2016-13
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    References listed on IDEAS

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    1. Mark Bils, 2009. "Do Higher Prices for New Goods Reflect Quality Growth or Inflation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 637-675.
    2. Ivancic, Lorraine & Erwin Diewert, W. & Fox, Kevin J., 2011. "Scanner data, time aggregation and the construction of price indexes," Journal of Econometrics, Elsevier, vol. 161(1), pages 24-35, March.
    3. Daniel Melser & Iqbal A. Syed, 2016. "Life Cycle Price Trends and Product Replacement: Implications for the Measurement of Inflation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 509-533, September.
    4. Nobuhiro Abe & Yojiro Ito & Ko Munakata & Shinsuke Ohyama & Kimiaki Shinozaki, 2016. "Pricing Patterns over Product Life-Cycle and Quality Growth at Product Turnover: Empirical Evidence from Japan," Bank of Japan Working Paper Series 16-E-5, Bank of Japan.
    5. W. Erwin Diewert & Saeed Heravi & Mick Silver, 2009. "Hedonic Imputation versus Time Dummy Hedonic Indexes," NBER Chapters, in: Price Index Concepts and Measurement, pages 161-196, National Bureau of Economic Research, Inc.
    6. Daniel Melser, 2018. "Scanner Data Price Indexes: Addressing Some Unresolved Issues," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(3), pages 516-522, July.
    7. Erwin Diewert, 2005. "Weighted Country Product Dummy Variable Regressions And Index Number Formulae," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 561-570, December.
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    11. Silver, Mick & Heravi, Saeed, 2005. "A Failure in the Measurement of Inflation: Results From a Hedonic and Matched Experiment Using Scanner Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 269-281, July.
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    Cited by:

    1. Janine Boshoff & Xuxin Mao & Garry Young, 2020. "Outlier detection methodologies for alternative data sources: International review of current practices," Economic Statistics Centre of Excellence (ESCoE) Technical Reports ESCOE-TR-07, Economic Statistics Centre of Excellence (ESCoE).

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    More about this item

    Keywords

    hedonic regression; multilateral price indexes; new and disappearing items; quality change; scanner data;
    All these keywords.

    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

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