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

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  • Xosé-Luís Varela-Irimia

    (Universitat Rovira i Virgili, Departament d'?Economia, Av. Universitat, 1. 43204 Reus, Spain.)

Abstract

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 e¤ects and time-variant unobserved quality changes, that are assumed to be captured by model age e¤ects. 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.

Suggested Citation

  • Xosé-Luís Varela-Irimia, 2011. "Age effects, unobserved characteristics and hedonic price indexes: The Spanish car market in the 1990?s," Working Papers XREAP2011-11, Xarxa de Referència en Economia Aplicada (XREAP), revised Aug 2011.
    • Handle: RePEc:xrp:wpaper:xreap2011-11
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    References listed on IDEAS

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    More about this item

    Keywords

    Hedonic price indexes; Spanish car market; car prices; CPI; Cost of living.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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