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Age effects, unobserved characteristics and hedonic price indexes: The Spanish car market in the 1990's

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  • Varela-Irimia, Xosé-Luís

Abstract

This paper computes and compares alternative quality-adjusted price indexes for new cars in Spain in the period 1990-2000. The proposed hedonic approach simultaneously controls for time-invariant unobserved product effects and time-variant unobserved quality changes, that are assumed to be captured by model age effects. The results show that the non-adjusted price index largely overstates the increase in the cost of living induced by changes in car prices and that previous evidence for this market have not measured the real extent of that bias, probably due to the omission of controls for unobservables. It is also shown that omitting age effects can also lead to misleading conclusions. The estimated price indexes give also some insights on what could have been the determinants of price evolution in the Spanish car market. JEL classi…fication numbers: C43, E31, L11, L13, Keywords: Hedonic price indexes, Spanish car market, car prices, CPI, Cost of living

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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/169683.

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Date of creation: 2011
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Handle: RePEc:urv:wpaper:2072/169683

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Keywords: Automòbils -- Indústria i comerç -- Espanya; Índex de preus al consum; Cost de la vida; Preus -- Política governamental; 338 - Situació econòmica. Política econòmica. Gestió; control i planificació de l'economia. Producció. Serveis. Turisme. Preus;

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  5. Gian Maria Tomat, 2002. "Durable goods, price indexes and quality change: an application to automobile prices in Italy, 1988-1998," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 439, Bank of Italy, Economic Research and International Relations Area.
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  16. Cowling, Keith & Cubbin, John, 1972. "Hedonic Price Indexes for United Kingdom Cars," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 82(327), pages 963-78, September.
  17. Kenneth Brown, 2000. "Hedonic price indexes and the distribution of buyers across the product space: an application to mainframe computers," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(14), pages 1801-1808.
  18. Jonathan Murray & Nicholas Sarantis, 1999. "Price-Quality Relations and Hedonic Price Indexes for Cars in the United Kingdom," International Journal of the Economics of Business, Taylor & Francis Journals, Taylor & Francis Journals, vol. 6(1), pages 5-27.
  19. Francisco Requena-Silvente & James Walker, 2006. "Calculating Hedonic Price Indices with Unobserved Product Attributes: An Application to the UK Car Market," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 73(291), pages 509-532, 08.
  20. Zvi Griliches, 1961. "Hedonic Price Indexes for Automobiles: An Econometric of Quality Change," NBER Chapters, National Bureau of Economic Research, Inc, in: The Price Statistics of the Federal Goverment, pages 173-196 National Bureau of Economic Research, Inc.
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