Constructing Quality-Adjusted Price Indices: A Comparison of Hedonic and Discrete Choice Models

34 Pages Posted: 14 May 2003

See all articles by Nicole Jonker

Nicole Jonker

De Nederlandsche Bank (DNB); De Nederlandsche Bank

Date Written: September 2002

Abstract

The Boskin report (1996) concluded that the US consumer price index (CPI) overestimated the inflation by 1.1 percentage points. This was due to several measurement errors in the CPI. One of them is called quality change bias. We compare two methods in this paper which can be used to correct for quality change bias, namely the hedonic method and a method based on the use of discrete choice models. We compare the underlying micro-economic models of the two methods as well as their empirical implementation. Although the discrete choice model has not been used often to calculate quality-adjusted price indices, past research shows that it might be beneficial to do so.

Keywords: Consumer price index, consumer behaviour, firm behaviour, discrete choice models

JEL Classification: C43, D11, D21, C25

Suggested Citation

Jonker, Nicole, Constructing Quality-Adjusted Price Indices: A Comparison of Hedonic and Discrete Choice Models (September 2002). ECB Working Paper No. 172. Available at SSRN: https://ssrn.com/abstract=358104

Nicole Jonker (Contact Author)

De Nederlandsche Bank (DNB) ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
154
Abstract Views
1,283
rank
191,137
PlumX Metrics