Bias in U.S. Import Prices and Demand
AbstractThe purpose of the paper is to measure the potential bias in the U.S. import price index due to the appearance of new product varieties, or new foreign suppliers, and determine the effect of this bias on the estimated income elasticity of import demand. Existing import price indexes are based on a sample of products from importing firms. We argue that if the share of import expenditure on the sampled products is falling over time, this will lead to an upward bias in the measured index. Using a correction based on the falling expenditure share on sampled countries, we find that the income elasticity of aggregate U.S. import demand is reduced from 2.5 to 1.7, or about halfway to unity. Our estimates suggest that the aggregate import price index is upward biased by about one and one-half percentage points annually.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4841.
Date of creation: Aug 1994
Date of revision:
Publication status: published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 249, (Chicago: University of Chicago Press, 1997).
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Other versions of this item:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
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