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A failure in the measurement of inflation: results from a hedonic and matched experiment using scanner data

  • Silver, Mick
  • Heravi, Saeed

Statistical offices use the matched models method to compile consumer price indices (CPIs) to measure inflation. The prices of a sample of models are recorded, and then price collectors visit the same stores each subsequent month to record the prices of the same matched sample of models. The matched models method is designed to control for quality changes. But new, unmatched models launched in subsequent months have their prices ignored as do old unmatched models no longer available. The paper uses retailer's bar-code scanner data on several consumer durables to show that serious sample degradation can take place and that the quality-adjusted prices of unmatched items differ from those of matched ones, leading to substantial underestimates of inflation. Hedonic indices use the whole sample. They are argued to be more useful to price measurement in markets with a rapid turnover of models in order to avoid the demonstrated bias. JEL Classification: C43, E43, O47

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Paper provided by European Central Bank in its series Working Paper Series with number 0144.

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Date of creation: May 2002
Date of revision:
Handle: RePEc:ecb:ecbwps:20020144
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  1. Mary F. Kokoski & Brent R. Moulton & Kimberly D. Zieschang, 1999. "Interarea Price Comparisons for Heterogeneous Goods and Several Levels of Commodity Aggregation," NBER Chapters, in: International and Interarea Comparisons of Income, Output, and Prices, pages 123-169 National Bureau of Economic Research, Inc.
  2. Katharine G. Abraham & John S. Greenlees & Brent R. Moulton, 1998. "Working to Improve the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 27-36, Winter.
  3. Zvi Griliches, 1991. "Hedonic Price Indexes and the Measurement of Capital and Productivity: Some Historical Reflections," NBER Chapters, in: Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, pages 185-206 National Bureau of Economic Research, Inc.
  4. Michael J. Boskin, 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.
  5. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  6. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, July.
  7. Paul A. Armknecht & Fenella Maitland-Smith, 1999. "Price Imputation and Other Techniques for Dealing with Missing Observations, Seasonality and Quality Change in Price Indices," IMF Working Papers 99/78, International Monetary Fund.
  8. Alan Heston & Robert E. Lipsey, 1999. "International and Interarea Comparisons of Income, Output, and Prices," NBER Books, National Bureau of Economic Research, Inc, number hest99-1, July.
  9. Alastair Cunningham, 1996. "Measurement Bias in Price Indices: An Application to the UK's RPI," Bank of England working papers 47, Bank of England.
  10. Hoffmann, Johannes, 1998. "Problems of inflation measurement in Germany," Discussion Paper Series 1: Economic Studies 1998,01e, Deutsche Bundesbank, Research Centre.
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