Separating Quantity Shock and Quality Innovation in Relative Prices

Thang Nguyen

MPRA Paper from University Library of Munich, Germany

Abstract: The study develops a simple general equilibrium model to infer relative quality changes, and applies the method to the US services goods economy in 1946-2005. The general equilibrium framework helps separate quantity and quality e¤ects on the observable relative price and budget share which constitute double manifestation. Empirical results show that US services relative quality is increasing since 1970s, and quantity shock alone cannot fully explain the evolution of services relative price. The latter finding puts forth a warning on the missing of quality changes in some business cycle models.

Keywords: quality innovation; quality inference; business cycles (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2005-09-21, Revised 2006-05-07
New Economics Papers: this item is included in nep-mac
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https://mpra.ub.uni-muenchen.de/225/1/MPRA_paper_225.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/788/1/MPRA_paper_788.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:225

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