Discussion Paper Details

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Title: New Characteristics and Hedonic Price Index Numbers

Author(s): Ian Crawford and J Peter Neary

Publication Date: January 2019

Keyword(s): Characteristics Model, Extensive and Intensive Margins of Consumption, Quality Change and Sato-Vartia-Feenstra Index Numbers

Programme Area(s): International Trade and Regional Economics

Abstract: Changes in product characteristics on the extensive margin are an important and hitherto neglected dimension of quality change. Standard techniques for quality-adjusting price indices cannot handle such changes satisfactorily, which leads to an economically and statistically significant bias in the measurement of prices and real output. We combine theoretical insights from index numbers and demand for characteristics to develop a new method for incorporating changes on the extensive characteristic margin. Applied to data on new car sales in the U.K., our method leads to revisions in estimated inflation rates for this commodity group that are both plausible and quantitatively important.

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Bibliographic Reference

Crawford, I and Neary, J. 2019. 'New Characteristics and Hedonic Price Index Numbers'. London, Centre for Economic Policy Research.