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Age effects, unobserved characteristics and hedonic price indexes: The Spanish car market in the 1990's

  • Varela-Irimia, Xosé-Luís

This paper computes and compares alternative quality-adjusted price indexes for new cars in Spain in the period 1990-2000. The proposed hedonic approach simultaneously controls for time-invariant unobserved product effects and time-variant unobserved quality changes, that are assumed to be captured by model age effects. The results show that the non-adjusted price index largely overstates the increase in the cost of living induced by changes in car prices and that previous evidence for this market have not measured the real extent of that bias, probably due to the omission of controls for unobservables. It is also shown that omitting age effects can also lead to misleading conclusions. The estimated price indexes give also some insights on what could have been the determinants of price evolution in the Spanish car market. JEL classi…fication numbers: C43, E31, L11, L13, Keywords: Hedonic price indexes, Spanish car market, car prices, CPI, Cost of living

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File URL: http://hdl.handle.net/2072/169683
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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/169683.

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Date of creation: 2011
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Handle: RePEc:urv:wpaper:2072/169683
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  16. Gian Maria Tomat, 2002. "Durable goods, price indexes and quality change: an application to automobile prices in Italy, 1988-1998," Temi di discussione (Economic working papers) 439, Bank of Italy, Economic Research and International Relations Area.
  17. Kenneth Brown, 2000. "Hedonic price indexes and the distribution of buyers across the product space: an application to mainframe computers," Applied Economics, Taylor & Francis Journals, vol. 32(14), pages 1801-1808.
  18. Mario Izquierdo & Omar Licandro & Alberto Maydeu, 2001. "Mejoras de calidad e índices de precios del automóvil en España," Estudios Económicos, Banco de España;Estudios Económicos Homepage, number 72, December.
  19. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, November.
  20. Ohta, Makoto, 1987. "Gasoline Cost and Hedonic Price Indexes of U.S. Used Cars for 1970-1983," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 521-28, October.
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