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

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  • Robert C. Feenstra

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3610.

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Date of creation: Feb 1991
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Publication status: published as revised as "New Product Varieties and the Measurement of International Prices", American Economic Review, Vol. 84, no. 1, pp. 157-177, (March 1994).
Handle: RePEc:nbr:nberwo:3610

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  1. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
  2. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
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  4. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May.
  5. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  6. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  7. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  8. 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.
  9. Robert C. Feenstra & James R. Markusen, 1992. "Accounting for Growth With New Inputs," NBER Working Papers 4114, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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, Econometric Society, vol. 50(6), pages 1393-1414, November.
  12. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  13. Kravis, Irving B, 1984. "Comparative Studies of National Incomes and Prices," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 22(1), pages 1-39, March.
  14. Makoto Ohta & Zvi Griliches, 1976. "Automobile Prices Revisited: Extensions of the Hedonic Hypothesis," NBER Chapters, National Bureau of Economic Research, Inc, in: Household Production and Consumption, pages 325-398 National Bureau of Economic Research, Inc.
  15. White, Halbert, 1980. "Nonlinear Regression on Cross-Section Data," Econometrica, Econometric Society, Econometric Society, vol. 48(3), pages 721-46, April.
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Cited by:
  1. Lukas Mohler, 2009. "Globalization and the Gains from Variety: The Case of a Small Open Economy," FIW Working Paper series, FIW 031, FIW.
  2. Corbo, Vesna & Osbat, Chiara, 2012. "Optimism bias? The elasticity puzzle in international economics revisited," Working Paper Series, European Central Bank 1482, European Central Bank.
  3. Feenstra, R. & Markusen, J.R., 1991. "Accounting for Growth with New Inputs," Papers, California Davis - Institute of Governmental Affairs 380, California Davis - Institute of Governmental Affairs.
  4. Bernard Fingleton & Miguel Gómez-Antonio, 2009. "Analysing the Impact of Public Capital Stock Using the NEG Wage Equation: A Panel Data Approach," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0024, Spatial Economics Research Centre, LSE.
  5. Gómez-Antonioa, Miguel & Fingleton, Bernard, 2009. "Analysing the impact of public capital stock using the NEG wage equation: a panel data approach," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2009-29, Scottish Institute for Research in Economics (SIRE).
  6. Corbo, Vesna & Osbat, Chiara, 2013. "Trade adjustment in the European Union - a structural estimation approach," Working Paper Series, European Central Bank 1535, European Central Bank.
  7. Imbs, Jean & Mejean, Isabelle, 2009. "Elasticity Optimism," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7177, C.E.P.R. Discussion Papers.
  8. Zvi Griliches, 1997. "The Commission Report on the Consumer Price Index (panel discussion)," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 169-173.

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