On Quality and Variety Bias in Aggregate Prices

Francesco Zanetti and Masashige Hamano

No 823, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Abstract How do product variety and quality affect the aggregate price bias? We develop a general equilibrium model that accounts for the joint interaction of product quality and variety. Our findings show that the aggregate price bias is pro-cyclical and the contribution of product variety is persistent whereas the contribution of product quality becomes counter-cyclical in the medium to long run. We show that accounting for product quality and variety has critical implications on the measure of cyclical fluctuations. Measurements of cyclical fluctuations derived using the consumption deflator, which abstracts from changes in product quality and variety, underestimate the variables' true volatility.

Keywords: Firm's entry and exit; product quality; product variety (search for similar items in EconPapers)
JEL-codes: D24 E23 E32 L11 L60 (search for similar items in EconPapers)
Date: 2017-02-27
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: On Quality and Variety Bias in Aggregate Prices (2018)
Working Paper: On business cycles of product variety and quality (2014)
Working Paper: On business cycles of variety and quality (2013)
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