Working Paper: NBER ID: w10606
Authors: Mark Bils
Abstract: Using micro CPI data, I show that much of inflation for durable goods since 1988 reflects, not increases in price for a given set of products, but rather shifts to a newer set of product models that display higher prices. I examine how these price differences should be divided between quality growth and price inflation based on how consumer spending responds to product substitutions. For all goods examined (cars, other vehicles, televisions, and other consumer electronics), buying shifts to the newer models despite their higher prices. This suggests that quality growth for durables has averaged at least 5.8% per year, more than double the rate implied by CPI measurement.
Keywords: No keywords provided
JEL Codes: O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shifts to newer product models (L15) | observed inflation in durable goods (E31) |
| scheduled and forced substitutions (C78) | significant increases in unit prices (P22) |
| BLS methods (C51) | overstate inflation (E31) |
| price increases from forced substitutions (P22) | underestimation of true inflation rates (E31) |
| measuring inflation based on matched models (C54) | faster quality growth estimate (O40) |
| quality growth (L15) | average quality growth for durables (L68) |
| price changes (P22) | quality growth or inflation (O42) |