Chained,exact and superlative hedonic price changes: estimates from microdata

Scanner data are used to calculate chained, exact (and superlative) hedonic price indexes for television sets. The data source is available for a wide range of goods, the application providing an example of how this method can be more widely applied. The indexes correspond to constant utility, hedonic cost-of-living indexes. The approach improves on the existing direct method, which takes its estimates directly from the coefficients on time dummies in a hedonic regression. It also improves on the matched model method used by statistical agencies. The differences between actual price changes and exact hedonic quality-adjusted price changes are found to be substantial. Base-period and current-period weighted exact hedonic indexes are similar, thus providing good approximations to a superlative index. Estimates from the direct, dummy variable approach were compared to the superlative indexes. The disparities between the results argue for caution in the use of the direct, dummy variable approach to estimating quality-adjusted price changes.     

Scanner Data and the Measurement of Inflation

This paper outlines the potential use of bar-code scanner data from retailers for the measurement of inflation. The source benefits from its extensive coverage in providing data on prices, quantities and values of transactions of each model of a good sold. Relative weights can thus be ascribed to price changes in both base and current months at a highly detailed level which allows us to estimate substitution bias. Methods of adjusting for quality changes can be considered. The dummy variable hedonic approach is compared with a superlative, exact hedonic approach and a matching technique akin to that used by statistical offices.     

Estimating Coaching Efficiency in Professional Team Sports: Evidence from English Association Football

This study provides a review of the literature on sporting production functions with an emphasis on different input‐output specifications and alternative estimation procedures. Empirical evidence is reported for English association football on the robustness of estimates of coaching efficiency to changes in estimation methods and the definition of team performance and playing talent inputs. A measure of player quality based on predicted start‐of‐season transfer values is developed. It is found that the estimation of coaching efficiency is sensitive to the choice of time‐invariant efficiency models versus time‐varying and inefficiency effects models. It is also found that the results are little affected by different measures of team performance but are highly sensitive to the use of an ex post financial expenditure input measure. Ex ante input measures based on start‐of‐season player characteristics or predicted transfer values are recommended as more appropriate on both theoretical and empirical grounds.     

Using Scanner Data to Estimate Country Price Parities: A Hedonic Regression Approach

This paper uses scanner data from the bar-code readers of retailers to provide estimates of inter-country price parities at the level of the basic heading. The use of such data is appealing given its extensive coverage of transactions, information on weights, prices and characteristics of items at a highly detailed level. The study uses dummy variable hedonic and exact/superlative hedonic index number formulations applied to an inter-country context for both bilateral and multilateral comparisons. Unlike conventional methods, such methods are not confined to matched samples comparisons and thus make use of the entire sample. Their application extends to price survey data using checklists on characteristics. The application is to scanner data on about 1 million transactions for television sets over two months in three countries. It is, to the authors' knowledge, the first such use of scanner data and application of the above hedonic frameworks in this context.     

Trade, product cycles, and inequality within and between countries

Abstract.  This paper incorporates Northern product innovation and product‐cycle‐driven technology transfer into the continuum‐of‐goods Heckscher‐Ohlin model. The creation of very skill‐intensive goods induces the North to transfer production of older, less skill‐intensive goods to the South. These relocated goods are the most skill intensive by Southern standards. Hence, product cycles raise the relative demand for skilled workers and thus wage inequality within both regions. This runs contrary to the Stolper‐Samuelson theorem, but accords well with the fact that wage inequality has risen in both Northern and Southern countries. Moreover, product cycles increase income inequality between countries. JEL classification: F1     

An assessment of mortgage interest inflation measurement bias in the UK

This article recognizes the highly differentiated nature of UK mortgages. Applying hedonic pricing models in the generation of interest quality adjusted indices this study would suggest the need for a 0.24 percentage point increase in the retail price index (RPI) (which, at an average RPI of 3%, represents a measurement error of 9%). Moreover, this study finds that lenders tend to restrain increases in observable initial interest rates, but more than recoup this restraint through quality adjustments. These findings question the practice of removing mortgage interest repayments from macroeconomic inflationary target measures. This indicates the need to recognize the indirect inflationary impact of base rate rises on the price of highly differentiated debt based products.     

Understanding Price Variation Across Stores and Supermarket Chains: Some Implications for CPI Aggregation Methods

The empirical literature on price indices consistently finds that aggregation methods have a considerable impact, particularly when scanner data are used. This paper outlines a novel approach to test for the homogeneity of goods and hence for the appropriateness of aggregation. A hedonic regression framework is used to test for item homogeneity across four supermarket chains and across stores within each of these supermarket chains. We find empirical support for the aggregation of prices across stores which belong to the same supermarket chain. Support was also found for the aggregation of prices across three of the four supermarket chains.     

Hedonic price measurement: the CCC approach

An accurate measurement of general price inflation is an essential prerequisite for sound economic analysis and prudent policy-making. Regrettably, numerous hedonic regression studies (predominately focusing on computers) have suggested that due to product quality changes, national statistical agencies are not computing unbiased price-trend estimates. This paper argues that the time-honored hedonic estimation procedure—the adjacent year regression (AYR) method—is generally neither unbiased nor robust. Consequently, the continuously changing coefficient (CCC) approach is introduced. Utilizing various hedonic techniques, several quality-adjusted price-trends for laser printers (1992–2005) were estimated and compared with the one officially released by the statistical agency.     

Offshoring,Sourcing Substitution Bias,and the Measurement of Growth in U.S. Gross Domestic Product and Productivity

The decade before the financial crisis of 2008 was a time of large changes in sourcing patterns for manufactured goods, particularly after China's entry into the WTO in 2001. Sourcing substitution reduced the prices paid by wholesale level buyers of these goods, but these price reductions were mostly not captured in the U.S. import price indexes and the U.S. GDP deflator. To find plausible values for sourcing bias we first use data on changes in sourcing patterns over 1997–2007 to predict the effect of the reported price discount from the new emerging market suppliers. Next, we compare adjusted import price indexes for products used for household consumption with consumer price indexes. In the GDP deflator for apparel imports, sourcing bias is found to average 0.6 percent per year, and for durable goods it averages 1 percent per year. During the decade of rapidly changing sourcing patterns, a tenth of the reported speedup in multifactor productivity growth of the U.S. private business sector may have come from sourcing bias in the deflators for imports.     

特征价格模型的发展应用研究

特征价格模型因为其完美的理论思想而成为国际上普遍使用的分析异质品价格和特征关系的主要方法.本文通过对国外核心期刊上一百五十二篇特征价格法相关文献的检阅,梳理了国内外特征价格模型及指数编制的研究现状,对特征价格模型的功能进行了总结性定位,认为特征价格模型的功能主要在于:异质品价格指数的编制,异质品价格预测、价值评估或产品定价,异质品价格影响因素分析,非市场因素的经济效应的检验及对传统经济学模型的改进五方面.文章最后以住宅为例,归纳总结了特征价格法在研究应用中存在的主要问题:一是市场细分;二是特征变量选择和量化;三是模型形式选择;四是模型估计方法的研究;五是指数编制中的问题.这些研究对象为未来特征价格的研究提供了可行参考.     

The Beta as a Model for the Distribution of Earnings

Existing functional forms commonly used to represent the earnings distribution have weak micro‐foundations and relatively poor empirical goodness‐of‐fit. This paper presents an optimizing model of firm behaviour, which predicts the earnings distribution to follow the beta distribution of the second kind, a distribution known to provide a superior fit to empirical data.     

The law of one price: intranational evidence for Canada

Abstract This study investigates the behaviour of intranational prices for 45 specific consumer goods across 25 Canadian cities. It finds positive roles for distance and provincial borders in intercity price disparities. While sizable, the provincial border effect is an order of magnitude smaller than the estimates for the Canada‐U.S. border. A majority of the intercity relative price series are stationary around small mean values, indicating that long‐run price differences are close to zero. The intercity prices converge at rates considerably faster than the consensus estimates for international prices. In fact, half-lives for intercity price deviations average well under a year. JEL Classification: F15, F31
La loi d'un seul prix : résultats intra‐nationaux pour le Canada Ce mémoire examine le comportement des prix intra‐nationaux de 45 biens de consommation spécifiques dans 25 villes canadiennes. Il semble que la distance et les frontières inter‐provinciales ont un impact sur les différentiels de prix entre villes.Même si l'impact des frontières inter‐provinciales est important, il est beaucoupplus petit que l'impact de la frontière Canada‐ U.S. Une majorité des séries de prix relatifs entre villes sont stationnaires autour de petites valeurs moyennes, ce qui suggère que les différences de prix à long terme s'approchent de zéro. Il est clair que les prix entre villes convergent à des taux considérablement plus rapides que ce qu'on observe au niveau international. En fait les déviations de prix entre villes ont une espérance de vie qui en moyenne est de moins d'un an.     

Housing rent dynamics in Italy

In this paper we focus on tenant rents in Italy and compare results from several methods for the rent dynamic estimation. We first document the sources of data available and then introduce quality adjusted techniques, which enable us to separate the price variation due to qualitative changes in housing attributes from pure price changes. Finally, we compare these measures with unconditional and matched-type price indices derived from microdata. Over the period 1998–2006, we estimate a cumulative rent increase ranging between 40 and 80%. The upper bound refers to the average dynamic for a subset of flats entering the market in a given period. Our hedonic estimates point to an average rent increase of approximately 40%, almost 20 percentage points above the one recorded by the rent component of the Italian consumer price index. A simple calibration model suggests that only part of the difference between our estimates and the official ones is due to survey non-response.     

A Linear Expenditure System with Adjustment Costs*

This paper develops a new dynamic version of the linear expenditure system. The dynamics derive from the utility function specification which includes an adjustment cost term. As a result, the consumer is less likely to fine-tune his consumption pattern—the substitution effects of small price changes are zero. The issue of the discrimination between this model of habit persistence and the Pollak and Wales habit formation model is discussed in some detail. Some preliminary estimates of the model are reported; these estimates were obtained using a quarterly Australian data base in which six commodities are individually distinguished.     

The role of innovation and quality change in Japanese economic growth

This paper explores the use of time series data to isolate quality change in the Japanese economy using a hedonic procedure. We argue that the traditional approach to hedonic estimation based upon panel data sets of different brands in a given product area is extremely resource intensive and, thus, unlikely to be adopted by official statistical bodies outside of key areas, such as computers. This paper adopts a “top-down” approach to see whether more traditional measures of technical change, such as patents, can be used to separate pure inflation from quality change. If this is possible, it offers a much simpler route to estimate the role of quality change in economic growth and performance. In practice, we extend the analysis not only to include patents, but other forms of intellectual property that might reflect technology and attribute changes, such as designs, utility models and trademarks. We begin by taking a longer-term historical perspective, exploring the development of indigenous inventive capacity in Japan during the early years when R&D data are not available. It is possible to show that the rise in utility models pre-dates the main growth in patenting activity, suggesting the development in more low-level indigenous creative work prior to higher level inventive activity. The principal aim of this paper, however, is to demonstrate that it is possible to develop robust models to explain changes in the producer price index in Japan, which can then be used to re-examine Japanese growth performance over the period from about 1960. If the official Japanese statistical body has fully accounted for quality change in the price indices (i.e. produced fully quality-constant price deflators), then the official estimates of growth will be correct. However, we provide strong evidence that this is not the case. Changes in quality, proxied by the IP variables, are important determinants of prices in Japan over the period 1960 to 1995 as a whole. Indeed, we provide evidence that the true rate of growth of the Japanese economy, taking into account the rate of quality change, is significantly higher than that suggested in official statistics.     

Goods market responses to trade shocks and trade and wages decompositions

Abstract.  Trade and wages literature asks whether trade or technology has been the major factor behind increases in wage inequality in OECD countries since the 1980s. In this literature, little attention has been paid to how goods market responses to trade shocks affect conclusions. Using an Armington heterogeneous goods trade model we capture demand side effects, and show how trade shocks affecting the price of unskilled‐intensive importable goods can be absorbed on the demand side of goods markets, with little or no impact on relative wage rates. No wage impact occurs if the elasticity of substitution in preferences between imports and import substitutes is one. As this elasticity increases, trade plays an ever larger role in explaining wage inequality changes, and as the elasticity goes below one the sign of the effect changes. We present some results of general equilibrium decompositions of total wage change into trade and technology components using UK data. We suggest that since many import demand elasticity estimates are in the neighbourhood of one, there is a prima facie case that goods market considerations further lower the significance of trade as an explanation of recent trends in OECD wage inequality beyond that claimed in the literature.     

Estimating exact hedonic indexes: An application to UK television sets

Much attention has been given to the estimation of hedonic regressions given their potential use as a means to adjust consumer and producer price indices for quality changes. However, there has been warranted criticism over the methods used, particularly relating to the econometric specification of the models. Much of the criticism has arisen from the inability of available data to match the requirements of a fully specified model. Using EPOS scanner data for UK television sets we provide reliable hedonic estimates which incorporate several developments. Such data are available for a wide range of product areas and this application illustrates how they might be used. We develop methodology to help surmount problems arising from omitted variables, the coexistence of new and old models, weighting of observations and quality changes common to all models. More specifically we pay particular attention to the neglected area of product markets where pricing is above marginal cost.     

AN EVALUATION OF THE USE OF HEDONIC REGRESSIONS FOR BASIC COMPONENTS OF CONSUMER PRICE INDICES

The importance of adjusting for quality changes in the measurement of consumer prices, and the role hedonic regressions can play in achieving this, is well recognised. However, the use of such regressions can take different forms, including (i) adjustments by statistical offices for non-comparable substitutions via the matched models method , (ii) direct estimates from the coefficients on dummy variables for time, and (iii) exact hedonic and superlative indices corresponding to a constant utility formulation from an economic theoretic approach. The literature on these approaches generally deals with each in isolation; the purpose of this paper is to outline and evaluate them in order to draw conclusions as to their practical suitability for the compilation of quality-adjusted consumer prices indexes. The case is argued for a move towards the last of these approaches, which developments in electronic data retrieval (scanner data) now make feasible. The paper concludes with the results of some empirical work comparing the results of the direct method with those from the exact, superlative, approach.     

Can Weak Substitution be Rehabilitated?

This paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non-market valuation. Weak complementarity and weak substitution represent preference restrictions that allow us to develop equivalent price changes to describe quantity or quality changes in non-market goods. The price changes are Hicksian equivalents in that they yield the same utility changes as would the quantity or quality changes. After discussion of several potential applications of weak substitution, the paper develops the parallel between the restriction and recent strategies from modeling differentiated goods.