Price Indexes Based on the Hedonic Repeat Sales Method: Application to the Housing Market

Abstract

Shiller (1993) proposes the hedonic repeated measures (HRM) approach to measuring constant quality price indexes for heterogeneous assets such as some bonds and real estate. We derive a mathematical relationship between the coefficents of the HRM model and those from the standard repeat sales model, and we demonstrate how hedonic characteristics should be chosen for inclusion in the HRM model. Empirical estimates using Fairfax, Virginia, housing transactions data show that the HRM price index evaluated at the mean of the hedonic variable is virtually identical to the standard repeat sales index, just as predicted by our mathematical relationship. But the HRM allows estimation of different price paths for heterogenous assets.

JEL Classification: G14, R31