Time Dummy Hedonic and Quality‐Adjusted Unit Value Indexes: Do They Really Differ?

20 Pages Posted: 16 Nov 2018

See all articles by Jan De Haan

Jan De Haan

Statistics Netherlands

Frances Krsinich

Government of New Zealand - Statistics New Zealand

Date Written: December 2018

Abstract

One of the main approaches to constructing quality‐adjusted price indexes is the time dummy hedonic method. An alternative but rather unconventional method is the estimation of quality‐adjusted unit value indexes. An advantage of the latter method is the interpretation of the implicit quantity index as the simple ratio of quality‐adjusted or standardized quantities. In this paper we compare the two methods. We show that the expenditure‐share weighted time dummy price index and the quality‐adjusted unit value index can be written as ratios of weighted geometric and harmonic means, respectively, of quality‐adjusted prices. Next, we argue that the two indexes will have similar trends and volatility if the quality‐adjusted prices in the quality‐adjusted unit value index are based on the estimated time dummy model. Our theoretical findings are illustrated on New Zealand scanner data for seven consumer electronics products.

Keywords: hedonic regression, quality adjustment, scanner data, unit values

Suggested Citation

De Haan, Jan and Krsinich, Frances, Time Dummy Hedonic and Quality‐Adjusted Unit Value Indexes: Do They Really Differ? (December 2018). Review of Income and Wealth, Vol. 64, Issue 4, pp. 757-776, 2018. Available at SSRN: https://ssrn.com/abstract=3285386 or http://dx.doi.org/10.1111/roiw.12304

Jan De Haan (Contact Author)

Statistics Netherlands ( email )

Henri Faasdreef 312
The Hague, 2492 JP
Netherlands

Frances Krsinich

Government of New Zealand - Statistics New Zealand

Dollan House, 401 Madras Street
Private Bag 4741
Christchurch, 8140
New Zealand

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