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Time Dummy Hedonic and Quality‐Adjusted Unit Value Indexes: Do They Really Differ?

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  • Jan de Haan
  • Frances Krsinich

Abstract

One of the main approaches to constructing quality‐adjusted price indexes is the time dummy hedonic method. An alternative but rather unconventional method is the estimation of quality‐adjusted unit value indexes. An advantage of the latter method is the interpretation of the implicit quantity index as the simple ratio of quality‐adjusted or standardized quantities. In this paper we compare the two methods. We show that the expenditure‐share weighted time dummy price index and the quality‐adjusted unit value index can be written as ratios of weighted geometric and harmonic means, respectively, of quality‐adjusted prices. Next, we argue that the two indexes will have similar trends and volatility if the quality‐adjusted prices in the quality‐adjusted unit value index are based on the estimated time dummy model. Our theoretical findings are illustrated on New Zealand scanner data for seven consumer electronics products.

Suggested Citation

  • Jan de Haan & Frances Krsinich, 2018. "Time Dummy Hedonic and Quality‐Adjusted Unit Value Indexes: Do They Really Differ?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(4), pages 757-776, December.
    • Handle: RePEc:bla:revinw:v:64:y:2018:i:4:p:757-776
    DOI: 10.1111/roiw.12304
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    Cited by:

    1. Henn, Karola & Islam, Chris-Gabriel & Schwind, Patrick & Wieland, Elisabeth, 2020. "Measuring price dynamics of package holidays with transaction data," Discussion Papers 24/2020, Deutsche Bundesbank.
    2. Jacek Bia{l}ek & Maciej Berk{e}sewicz, 2020. "Scanner data in inflation measurement: from raw data to price indices," Papers 2005.11233, arXiv.org.
    3. Diewert, Erwin, 2019. "Quality Adjustment and Hedonics: A Unified Approach," Microeconomics.ca working papers erwin_diewert-2019-2, Vancouver School of Economics, revised 14 Mar 2019.
    4. Jacek Białek, 2023. "Improving quality of the scanner CPI: proposition of new multilateral methods," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(3), pages 2893-2921, June.
    5. Diewert W. Erwin & Fox Kevin J., 2022. "Measuring Inflation under Pandemic Conditions," Journal of Official Statistics, Sciendo, vol. 38(1), pages 255-285, March.
    6. W. Erwin Diewert & Kevin J. Fox, 2020. "Measuring Real Consumption and CPI Bias under Lockdown Conditions," NBER Working Papers 27144, National Bureau of Economic Research, Inc.

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