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

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  • Xosé-Luís Varela-Irimia

    () (Universitat Rovira i Virgili, Departament d'?Economia, Av. Universitat, 1. 43204 Reus, Spain.)

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 e¤ects and time-variant unobserved quality changes, that are assumed to be captured by model age e¤ects. 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.

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File URL: http://www.pcb.ub.edu/xreap/aplicacio/fitxers/XREAP2011-11.pdf
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File URL: http://www.pcb.ub.edu/xreap/aplicacio/fitxers/XREAP2011-11.pdf
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Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2011-11.

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Length: 45 pages
Date of creation: Aug 2011
Date of revision: Aug 2011
Handle: RePEc:xrp:wpaper:xreap2011-11

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Keywords: Hedonic price indexes; Spanish car market; car prices; CPI; Cost of living.;

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  1. Feenstra, R.C., 1995. "Exact Hedonic Price Indexes," Department of Economics 95-11, California Davis - Department of Economics.
  2. Mario Izquierdo & Omar Licandro & Alberto Maydeu, . "Car quality improvements and price indices in Spain," Working Papers 2001-18, FEDEA.
  3. Kenneth Brown, 2000. "Hedonic price indexes and the distribution of buyers across the product space: an application to mainframe computers," Applied Economics, Taylor and Francis Journals, vol. 32(14), pages 1801-1808.
  4. Hugo J. Reis & J.M.C.Santos Silva, 2002. "Hedonic Prices Indexes for New Passenger Cars in Portugal (1997-2001)," Working Papers w200210, Banco de Portugal, Economics and Research Department.
  5. 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 and Francis Journals, vol. 6(1), pages 5-27.
  6. Gian Maria Tomat, 2002. "Durable goods; price indexes and quality change: an application to automobile prices in Italy, 1988-1998," Working Paper Series 118, European Central Bank.
  7. Mick Silver & Saeed Heravi, 2004. "Hedonic Price Indexes and the Matched Models Approach," Manchester School, University of Manchester, vol. 72(1), pages 24-49, 01.
  8. Triplett, Jack E, 1969. "Automobiles and Hedonic Quality Measurement," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 408-17, May/June.
  9. P. D. Chwelos & E. R. Berndt & I. M. Cockburn, 2008. "Faster, smaller, cheaper: an hedonic price analysis of PDAs," Applied Economics, Taylor and Francis Journals, vol. 40(22), pages 2839-2856.
  10. 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, vol. 73(291), pages 509-532, 08.
  11. Boskin, Michael J, et al, 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.
  12. C. Lanier Benkard & Patrick Bajari, 2005. "Hedonic Price Indexes With Unobserved Product Characteristics, and Application to Personal Computers," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 61-75, January.
  13. 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) 439, Bank of Italy, Economic Research and International Relations Area.
  14. Cowling, Keith & Cubbin, John, 1972. "Hedonic Price Indexes for United Kingdom Cars," Economic Journal, Royal Economic Society, vol. 82(327), pages 963-78, September.
  15. Christos Ioannidis & Mick Silver, 2003. "Chained, exact and superlative hedonic price changes: estimates from microdata," Applied Economics, Taylor and Francis Journals, vol. 35(9), pages 1005-1014.
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