Quantifying Quality Growth

45 Pages Posted: 18 May 2000 Last revised: 17 Oct 2010

See all articles by Mark Bils

Mark Bils

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2000

Abstract

We introduce an instrumental variables approach to estimate the importance of unmeasured quality growth for a set of 66 durable consumer goods. Our instrument is based on predicting which of these 66 goods will display rapid quality growth. Using pooled cross- relatively sections of households in the 1980 through 1996 U.S. Consumer Expenditure Surveys, we estimate quality Engel curves' for 66 durable consumer goods based on the extent richer households pay more for a good, conditional on purchasing. We use the slopes of these curves to predict the rate of quality-upgrading. Just as if households are ascending these quality Engel curves over time, we find that the average price paid rises faster for goods with steeper quality slopes. BLS prices likewise increase more quickly for goods with steeper quality slopes, suggesting the BLS does not fully net out the impact of quality-upgrading on prices paid. We estimate that quality growth averages about 3.7% per year for our goods, with about 60% of this, or 2.2% per year, showing up as higher inflation rather than higher real growth.

Suggested Citation

Bils, Mark and Klenow, Peter J., Quantifying Quality Growth (May 2000). NBER Working Paper No. w7695. Available at SSRN: https://ssrn.com/abstract=228988

Mark Bils (Contact Author)

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627-0158
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter J. Klenow

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
39
Abstract Views
1,188
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information