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Measuring Quality-Adjusted Inflation Rates for a Heterogeneous Oligopoly

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  • David Prentice

    ()
    (School of Economics, La Trobe University)

  • Xiangkang Yin

    ()
    (School of Economics, La Trobe University)

Abstract

Both the theory and practice of using hedonic regressions to quality adjust inflation estimates are implicitly developed for monopolistic competitive markets. We demonstrate conditions required for consistent OLS estimation of hedonic regression for an oligopoly. To reflect firm heterogeneity, we make two recommendations on empirical practice. The first is to use quantity weights in constructing the index rather than the unsatisfactory equal weighting system implicit in the standard pooled regression. Second, to test for instability across product type, as well as over time. Implementing these recommendations results in higher estimates of inflation, similar to official quality-adjusted inflation rate.

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File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0019/130861/2000.06.pdf
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Bibliographic Info

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2000.06.

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Length: 42 pages
Date of creation: Jun 2000
Date of revision:
Handle: RePEc:trb:wpaper:2000.06

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Keywords: Quality Adjustment; Price Index; Automobile Industry; Oligopoly;

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References

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  15. Silver, Mick, 1999. "An Evaluation of the Use of Hedonic Regressions for Basic Components of Consumer Price Indices," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 41-56, March.
  16. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
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Cited by:
  1. Kremmer, M.L. & Prentice, D., 2005. "On the Double Imputation Hedonic Price Index," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 35(1-2), pages 103-112, March/Sep.
  2. David Prentice & Xiangkang Yin, 2004. "Constructing a Quality-Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, 07.

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