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Separating Quantity Shock and Quality Innovation in Relative Prices

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  • Nguyen, Thang

Abstract

The study develops a simple general equilibrium model to infer relative quality changes, and applies the method to the US services goods economy in 1946-2005. The general equilibrium framework helps separate quantity and quality e¤ects on the observable relative price and budget share which constitute double manifestation. Empirical results show that US services relative quality is increasing since 1970s, and quantity shock alone cannot fully explain the evolution of services relative price. The latter finding puts forth a warning on the missing of quality changes in some business cycle models.

Suggested Citation

  • Nguyen, Thang, 2005. "Separating Quantity Shock and Quality Innovation in Relative Prices," MPRA Paper 225, University Library of Munich, Germany, revised 07 May 2006.
    • Handle: RePEc:pra:mprapa:225
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    File URL: https://mpra.ub.uni-muenchen.de/788/1/MPRA_paper_788.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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