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Effects of New Goods and Product Turnover on Price Indexes

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  • Abe, Naohito
  • Enda, Toshiki
  • Inakura, Noriko
  • Tonogi, Akiyuki

Abstract

This study analyzes the importance of new products for price measurements. Using large-scale retail scanner data in Japan, we construct a unit value price index and decompose its fluctuation into (1) standard price change effects, (2) substitution effects within continuing goods, and (3) turnover-new product effects. The aggregate unit price index exhibits different movements from the standard Laspeyres price index. After the 2014 change in Japan's tax rate, turnover-new product effects from the appearance of relatively expensive new goods increased by 1 percentage point, contributing to increases in unit value. However, the standard Laspeyres price index, which excludes information for new or disappearing goods, exhibited no large changes before and after the tax revision.

Suggested Citation

  • Abe, Naohito & Enda, Toshiki & Inakura, Noriko & Tonogi, Akiyuki, 2015. "Effects of New Goods and Product Turnover on Price Indexes," RCESR Discussion Paper Series DP15-2, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:rcesrs:dp15-2
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27158/dp15-2.pdf
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    References listed on IDEAS

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    1. Mark Bils, 2009. "Do Higher Prices for New Goods Reflect Quality Growth or Inflation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 637-675.
    2. Diewert W.Erwin & Lippe Peter von der, 2010. "Notes on Unit Value Index Bias," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(6), pages 690-708, December.
    3. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    4. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
    5. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, March.
    6. Mick Silver, 2010. "The Wrongs And Rights Of Unit Value Indices," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 206-223, June.
    7. 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.
    8. Daniel Melser & Iqbal A. Syed, 2013. "Prices over the Product Life Cycle: Implications for Quality-Adjustment and the Measurement of Inflation," Discussion Papers 2013-26, School of Economics, The University of New South Wales.
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    Cited by:

    1. Kozo Ueda & Kota Watanabe & Tsutomu Watanabe, 2018. "Product Turnover and the Cost of Living Index: Quality vs. Fashion Effects," Globalization Institute Working Papers 337, Federal Reserve Bank of Dallas.
    2. Kozo Ueda & Kota Watanabe & Tsutomu Watanabe, 2016. "Product Turnover and Deflation: Evidence from Japan," UTokyo Price Project Working Paper Series 073, University of Tokyo, Graduate School of Economics.
    3. Nobuhiro Abe & Kimiaki Shinozaki, 2018. "Compilation of Experimental Price Indices Using Big Data and Machine Learning:A Comparative Analysis and Validity Verification of Quality Adjustments," Bank of Japan Working Paper Series 18-E-13, Bank of Japan.

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