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Quality-corrected price indices: the case of the Dutch new passenger car market, 1990-1999

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  • Jan van Dalen
  • Ben Bode

Abstract

Market dynamics and technological developments constitute a major challenge to the proper measurement of the price evolution of durable goods. In this study, hedonic methods are used to estimate quality-corrected price indices of new passenger cars in the Netherlands, 1990-1999. Use is made of a huge set of price, quantity and quality information about 11,000 car models, obtained from different sources. During the observation period the nominal price level of all available car models increased about 20% on average, while the shares of car models with airbags, tinted glass and power steering increased from almost nothing to about 90%. Matched model price indices and the official CPI for new passenger cars, which partially account for quality-adjustments, estimate the price increase to be equal to 10.6-14.2% respectively 11.2% for the 1990-1999 period. By contrast, the hedonic Fisher-like price indices based on the preferred annually estimated brand-weighted semi-log hedonic model, lead to price changes varying from + 2.3% to - 3.4% (depending on the choice of weight variable, and the use of fixed or varying reference periods in the index construction) and thereby fall 8.9 to 14.6 percentage points below the official figures, over the period 1990-1999. The pooled adjacent-years model holds an intermediate position with a predicted quality-corrected price decrease of 1.8% over the observation period, which is 13.0 points below the CPI.

Suggested Citation

  • Jan van Dalen & Ben Bode, 2004. "Quality-corrected price indices: the case of the Dutch new passenger car market, 1990-1999," Applied Economics, Taylor & Francis Journals, vol. 36(11), pages 1169-1197.
  • Handle: RePEc:taf:applec:v:36:y:2004:i:11:p:1169-1197
    DOI: 10.1080/0003684042000247361
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    References listed on IDEAS

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    Cited by:

    1. Sylvain M. Prado, 2009. "The European used-car market at a glance: Hedonic resale price valuation in automotive leasing industry," Economics Bulletin, AccessEcon, vol. 29(3), pages 2086-2099.
    2. 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.
    3. Ikerne Valle Erkiaga & Kepa Ikazuriaga, 2013. "Assessing Changes in Capital and Investment as a Result of Fishing Capacity Limitation Programs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(2), pages 223-260, February.

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