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Quality adjustment of European price statistics and the role for hedonics

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  • Henning Ahnert
  • Geoff Kenny

Abstract

In this paper we review the well-known problem of how to measure price developments when the quality of the underlying goods and services is changing over time. The importance of appropriate methods to take account of quality change is highlighted from the perspective of monetary policy. In particular, we highlight the need for credible and transparent price indicators. In this context, we review the hedonic approach to calculating quality-adjusted price indices and assess the available information on their effects as well as their potential for improving credibility and comparability. Current practices as regards quality adjustment in the European Union (EU) are also discussed, with particular emphasis on the Harmonised Index of Consumer Prices (HICP). Overall, we give a qualified endorsement of hedonics for specific product categories and make some suggestions about how the work on quality adjustment in the EU can be further developed, focusing in particular on the role of hedonics.

Suggested Citation

  • Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
  • Handle: RePEc:ecb:ecbops:20040015
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    References listed on IDEAS

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    2. Mark A. Wynne & Diego Rodriguez-Palenzuela, 2004. "Measurement Bias in the HICP: What do we know and What do we need to know?," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 79-112, February.
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    5. Peter J. Klenow, 2003. "Measuring consumption growth: the impact of new and better products," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 10-23.
    6. G. Christian Ehemann & Brent R. Moulton, 2001. "Balancing the GDP Account," BEA Papers 0014, Bureau of Economic Analysis.
    7. Feenstra, Robert C, 1995. "Exact Hedonic Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 634-653, November.
    8. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
    9. Gordon, Robert J & Griliches, Zvi, 1997. "Quality Change and New Products," American Economic Review, American Economic Association, vol. 87(2), pages 84-88, May.
    10. Charles R. Hulten, 1997. "Quality change in the CPI," Review, Federal Reserve Bank of St. Louis, issue May, pages 87-100.
    11. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    12. Triplett, Jack E, 2001. "Should the Cost-of-Living Index Provide the Conceptual Framework for a Consumer Price Index?," Economic Journal, Royal Economic Society, vol. 111(472), pages 311-334, June.
    13. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1.
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