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A Comparison of Weighted Time-Product Dummy and Time Dummy Hedonic Indexes

Author

Listed:
  • Jan de Haan

    () (Division of Corporate Services, IT and Methodology, Statistics Netherlands)

  • Rens Hendriks

    () (Statistics for Development Division, Pacific Community (SPC))

  • Michael Scholz

    () (University of Graz)

Abstract

This paper compares two model-based multilateral price indexes: the time- product dummy (TPD) index and the time dummy hedonic (TDH) index, both estimated by expenditure-share weighted least squares regression. The TPD model can be viewed as the saturated version of the underlying TDH model, and we argue that the regression residuals are ``distorted towards zero'' due to overfitting. We decompose the ratio of the two indexes in terms of average regression residuals of the new and disappearing items (plus a third component that depends on the change in the matched items' normalized expenditure shares). The decomposition explains under which conditions the TPD index suffers from quality-change bias or, more generally, lack-of-matching bias. An example using scanner data on men's t-shirts illustrates our theoretical framework.

Suggested Citation

  • Jan de Haan & Rens Hendriks & Michael Scholz, 2016. "A Comparison of Weighted Time-Product Dummy and Time Dummy Hedonic Indexes," Graz Economics Papers 2016-13, University of Graz, Department of Economics.
  • Handle: RePEc:grz:wpaper:2016-13
    as

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    File URL: http://www100.uni-graz.at/vwlwww/forschung/RePEc/wpaper/2016-13.pdf
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    References listed on IDEAS

    as
    1. Mark Bils, 2009. "Do Higher Prices for New Goods Reflect Quality Growth or Inflation?," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 637-675.
    2. Ivancic, Lorraine & Erwin Diewert, W. & Fox, Kevin J., 2011. "Scanner data, time aggregation and the construction of price indexes," Journal of Econometrics, Elsevier, vol. 161(1), pages 24-35, March.
    3. Daniel Melser & Iqbal A. Syed, 2016. "Life Cycle Price Trends and Product Replacement: Implications for the Measurement of Inflation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 509-533, September.
    4. Silver, Mick & Heravi, Saeed, 2005. "A Failure in the Measurement of Inflation: Results From a Hedonic and Matched Experiment Using Scanner Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 269-281, July.
    5. Erwin Diewert, 2005. "Weighted Country Product Dummy Variable Regressions And Index Number Formulae," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 561-570, December.
    6. Kevin J. Fox & Daniel Melser, 2014. "Non-Linear Pricing and Price Indexes: Evidence and Implications from Scanner Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(2), pages 261-278, June.
    7. Summers, Robert, 1973. "International Price Comparisons Based Upon Incomplete Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(1), pages 1-16, March.
    8. Reinsdorf, Marshall B, 1999. "Using Scanner Data to Construct CPI Basic Component Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 152-160, April.
    9. de Haan, Jan & van der Grient, Heymerik A., 2011. "Eliminating chain drift in price indexes based on scanner data," Journal of Econometrics, Elsevier, vol. 161(1), pages 36-46, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    hedonic regression; multilateral price indexes; new and disappearing items; quality change; scanner data;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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