Measuring Quality-Adjusted Inflation Rates for a Heterogeneous Oligopoly

School of Business Discussion Paper No. A 00.06

41 Pages Posted: 6 Dec 2000

See all articles by David Prentice

David Prentice

Infrastructure Victoria

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: July 2000

Abstract

Both the theory and practice of using hedonic regressions to quality adjust inflation estimates are implicitly developed for monopolistic competitive markets. We demonstrate conditions required for consistent OLS estimation of hedonic regression for an oligopoly. To reflect firm heterogeneity, we make two recommendations on empirical practice. The first is to use quantity weights in constructing the index rather than the unsatisfactory equal weighting system implicit in the standard pooled regression. Second, to test for instability across product type, as well as over time. Implementing these recommendations results in higher estimates of inflation, similar to official quality-adjusted inflation rate.

JEL Classification: C51, D43, L62

Suggested Citation

Prentice, David and Yin, Xiangkang, Measuring Quality-Adjusted Inflation Rates for a Heterogeneous Oligopoly (July 2000). School of Business Discussion Paper No. A 00.06. Available at SSRN: https://ssrn.com/abstract=248971 or http://dx.doi.org/10.2139/ssrn.248971

David Prentice

Infrastructure Victoria ( email )

530 Collins St
Melbourne, 3000
Australia

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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