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Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models

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  • Jonker, Nicole

Abstract

The Boskin report (1996) concluded that the US consumer price index (CPI) overestimated the inflation by 1.1 percentage points. This was due to several measurement errors in the CPI. One of them is called quality change bias. We compare two methods in this paper which can be used to correct for quality change bias, namely the hedonic method and a method based on the use of discrete choice models. We compare the underlying micro-economic models of the two methods as well as their empirical implementation. Although the discrete choice model has not been used often to calculate quality-adjusted price indices, past research shows that it might be beneficial to do so. JEL Classification: C43, D11, D21, C25

Suggested Citation

  • Jonker, Nicole, 2002. "Constructing quality-adjusted price indices: a comparison of hedonic and discrete choice models," Working Paper Series 172, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2002172
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp172.pdf
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    Citations

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    Cited by:

    1. John K. Dagsvik & Astrid L. Mathiassen & Bengt J.Eriksson, 2006. "Quality adjusted price indexes for discrete goods," Discussion Papers 490, Statistics Norway, Research Department.
    2. Satoshi Nakano & Kazuhiko Nishimura, 2015. "Quality-adjusted productivity gain in the propagation of innovation," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 4(1), pages 1-16, December.
    3. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.

    More about this item

    Keywords

    consumer behaviour; consumer price index; discrete choice models; firm behaviour;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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