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An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods

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Listed:
  • Tim Erickson
  • Ariel Pakes

Abstract

The CPI component indices are obtained from comparing price quotes at a given store in different periods. If we omit comparisons from goods in the store in the initial, but not in the comparison, period we generate a selection bias: goods that exit are disproportionately obsolete goods that have falling prices. Building on Pakes (2003), we explain why standard hedonic predictions for second-period prices of exiting goods do not account for this bias. New hedonic methods are derived, shown to have desirable properties, and are applied to three CPI samples where they generate significant selection corrections. (JEL C43, E31)

Suggested Citation

  • Tim Erickson & Ariel Pakes, 2011. "An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods," American Economic Review, American Economic Association, vol. 101(5), pages 1707-1738, August.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:1707-38
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    References listed on IDEAS

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    1. Newey, Whitney K, 1994. "The Asymptotic Variance of Semiparametric Estimators," Econometrica, Econometric Society, vol. 62(6), pages 1349-1382, November.
    2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
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    Cited by:

    1. Klenow, Peter J. & Li, Huiyu, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Adam Copeland & Adam Hale Shapiro, 2010. "The impact of competition on technology adoption: an apples-to-PCs analysis," Staff Reports 462, Federal Reserve Bank of New York.
    3. Daniel Melser & Iqbal A. Syed, 2016. "Life Cycle Price Trends and Product Replacement: Implications for the Measurement of Inflation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 509-533, September.
    4. Emi Nakamura & Jón Steinsson, 2012. "Lost in Transit: Product Replacement Bias and Pricing to Market," American Economic Review, American Economic Association, vol. 102(7), pages 3277-3316, December.
    5. Copeland, Adam & Shapiro, Adam Hale, 2013. "Price Setting in an Innovative Market," Working Paper Series 2013-04, Federal Reserve Bank of San Francisco.
    6. Xosé-Luís Varela-Irimia, 2014. "Age effects, unobserved characteristics and hedonic price indexes: The Spanish car market in the 1990s," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(4), pages 419-455, November.
    7. Clemens C Struck & Clemens C. Struck, 2017. "On the Interaction of Growth, Trade and International Macroeconomics," Working Papers 201724, School of Economics, University College Dublin.
    8. Ana Aizcorbe & Nicole Nestoriak, 2010. "Price Indexes for Drugs: A Review of the Issues," BEA Working Papers 0050, Bureau of Economic Analysis.
    9. Aizcorbe, Ana & Bridgman, Benjamin & Nalewaik, Jeremy, 2010. "Heterogeneous car buyers: A stylized fact," Economics Letters, Elsevier, vol. 109(1), pages 50-53, October.
    10. Adam Hale Shapiro & Ana Aizcorbe, 2010. "Implications of Consumer Heterogeneity on Price Measures for Technology Goods," BEA Working Papers 0062, Bureau of Economic Analysis.
    11. repec:bla:ecinqu:v:55:y:2017:i:1:p:580-600 is not listed on IDEAS
    12. Iqbal A. Syed & Jan De Haan, 2017. "Age, Time, Vintage, And Price Indexes: Measuring The Depreciation Pattern Of Houses," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 580-600, January.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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