Bias in U.S. Import Prices and Demand
The purpose of the paper is to measure the potential bias in the U.S. import price index due to the appearance of new product varieties, or new foreign suppliers, and determine the effect of this bias on the estimated income elasticity of import demand. Existing import price indexes are based on a sample of products from importing firms. We argue that if the share of import expenditure on the sampled products is falling over time, this will lead to an upward bias in the measured index. Using a correction based on the falling expenditure share on sampled countries, we find that the income elasticity of aggregate U.S. import demand is reduced from 2.5 to 1.7, or about halfway to unity. Our estimates suggest that the aggregate import price index is upward biased by about one and one-half percentage points annually.
|Date of creation:||Aug 1994|
|Date of revision:|
|Publication status:||published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 249, (Chicago: University of Chicago Press, 1997).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Krugman, Paul, 1989.
"Differences in income elasticities and trends in real exchange rates,"
European Economic Review,
Elsevier, vol. 33(5), pages 1031-1046, May.
- Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
- Peter Hooper, 1989. "Exchange rates and U.S. external adjustment in the short run and the long run," International Finance Discussion Papers 346, Board of Governors of the Federal Reserve System (U.S.).
- Manuel Trajtenberg, 1990. "Product Innovations, Price Indices and the (Mis)Measurement of Economic Performance," NBER Working Papers 3261, National Bureau of Economic Research, Inc.
- Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4841. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.