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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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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
Date of revision:
Handle: RePEc:urv:wpaper:2072/169683
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  1. Paul D. Chwelos & Ernst R. Berndt & Iain M. Cockburn, 2004. "Faster, Smaller, Cheaper: An Hedonic Price Analysis of PDAs," NBER Working Papers 10746, National Bureau of Economic Research, Inc.
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  8. Jonathan Murray & Nicholas Sarantis, 1999. "Price-Quality Relations and Hedonic Price Indexes for Cars in the United Kingdom," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(1), pages 5-27.
  9. Olympia Bover & Mario Izquierdo, 2003. "Quality-adjusted prices: hedonic methods and implications for national accounts," Investigaciones Economicas, Fundación SEPI, vol. 27(2), pages 199-238, May.
  10. Triplett, Jack E, 1969. "Automobiles and Hedonic Quality Measurement," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 408-17, May/June.
  11. Jan van Dalen & Ben Bode, 2004. "Quality-corrected price indices: the case of the Dutch new passenger car market, 1990-1999," Applied Economics, Taylor & Francis Journals, vol. 36(11), pages 1169-1197.
  12. Christos Ioannidis & Mick Silver, 2003. "Chained, exact and superlative hedonic price changes: estimates from microdata," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1005-1014.
  13. 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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  16. Francisco Requena-Silvente & James Walker, 2006. "Calculating Hedonic Price Indices with Unobserved Product Attributes: An Application to the UK Car Market," Economica, London School of Economics and Political Science, vol. 73(291), pages 509-532, 08.
  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. Anna Matas & Josep-Lluis Raymond, 2009. "Hedonic prices for cars: an application to the Spanish car market, 1981-2005," Applied Economics, Taylor & Francis Journals, vol. 41(22), pages 2887-2904.
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