Working Paper: NBER ID: w31309
Authors: Gabriel Ehrlich; John C. Haltiwanger; Ron S. Jarmin; David Johnson; Ed Olivares; Luke W. Pardue; Matthew D. Shapiro; Laura Zhao
Abstract: This paper explores alternative methods for adjusting price indices for quality change at scale. These methods can be applied to large-scale item-level transactions data that includes information on prices, quantities, and item attributes. The hedonic methods can take into account the changing valuations of both observable and unobservable characteristics in the presence of product turnover. The paper also considers demand-based approaches that take into account changing product quality from product turnover and changing appeal of continuing products. The paper provides evidence of substantial quality-adjustment in prices for a wide range of goods, including both high-tech consumer products and food products.
Keywords: price indices; quality adjustment; hedonic methods; demand-based methods
JEL Codes: C81; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Product turnover (D25) | Quality adjustments in price indices (C43) |
| Product turnover (D25) | Changing consumer valuations of product attributes (D11) |
| EP hedonic method (D11) | Quality adjustment evidence (I12) |
| Demand-based models (CUPI) (D26) | Quality adjustments (C43) |
| Changing product appeal over time (L15) | Quality adjustments (C43) |