Hedonic Regressions, Matched Models and Economic Theory
Quality adjustment of price indexes affects the analysis of many sensitive economic issues, such as real growth, productivity, international competitiveness, real wages, per-capita consumption and poverty, other than inflation. Hedonic methods are often recommended and increasingly used in the compilation of consumer price indexes. Nevertheless many official statistical agencies continue adopting traditional methods considering only the dynamics of prices of products matching in two adjacent periods of time. Indeed, a number of studies have even recently remarked that hedonic methods sometimes provide results very similar to the traditional matching models approach, particularly when models included in price index sample are replenished frequently. This paper briefly surveys the economic theory behind hedonic and traditional quality adjustment methods, and demonstrates that average price changes estimated by hedonic regressions differ from matched models estimation only because of the sum of regression residuals associated to disappearing and new models included in the sample. Thus, hedonic regressions including among the explanatory variables some indicators of the novelty and oldness of models provide exactly the same results of traditional methods. This fact casts some doubt on the overall effectiveness of hedonic methods in quality adjustment. The paper also focuses on that some economic and statistical hypotheses underlying hedonic methods possibly conflict with the assumptions and practices embodied in compiling the harmonised index of consumer prices for European countries.
|Date of creation:||Apr 2008|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
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.:
- Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:36178. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.