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Consistency of Hedonic Price Indexes with Unobserved Characteristics

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  • Iqbal Syed

    () (School of Economics, University of New South Wales)

Abstract

Hedonic regressions are prone to omitted variable bias. The estimation of price relatives for new and disappearing goods using hedonic imputation methods involves taking ratios of hedonic models. This may lead to a situation where the omitted variable bias in each of the hedonic regressions offset each other. This study finds that the single imputation hedonic method estimates inconsistent price relatives, while the double imputation method may produce consistent price relatives depending on the behavior of unobserved characteristics in the comparison periods. The study outlines a methodology to test whether double imputation price relatives are consistent. The results of this study have implications with regard to the construction of quality adjusted indexes.

Suggested Citation

  • Iqbal Syed, 2010. "Consistency of Hedonic Price Indexes with Unobserved Characteristics," Discussion Papers 2010-03, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2010-03
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-03.pdf
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    Cited by:

    1. Jan de Haan & Frances Krsinich, 2014. "Scanner Data and the Treatment of Quality Change in Nonrevisable Price Indexes," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(3), pages 341-358, July.
    2. Iqbal A. Syed & Jan De Haan, 2017. "Age, Time, Vintage, And Price Indexes: Measuring The Depreciation Pattern Of Houses," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 580-600, January.

    More about this item

    Keywords

    Hedonic imputation method; omitted variable bias; model selection; quality adjusted price indexes; new and disappearing goods;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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