Do Higher Prices for New Goods Reflect Quality Growth or Inflation?

Mark Joseph Bils

The Quarterly Journal of Economics, 2009, vol. 124, issue 2, pages 637-675

Abstract: Much of Consumer Price Index (CPI) inflation for consumer durables reflects shifts to newer product models that display higher prices, not price increases for a given set of goods. I examine how these higher prices for new models should be divided between quality growth and price inflation based on (a) whether consumer purchases shift toward or away from the new models and (b) whether new-model price increases generate higher relative prices that persist through the model cycle. I conclude that two-thirds of the price increases with new models should be treated as quality growth. This implies that CPI inflation for durables has been overstated by almost 2 percentage points per year, with quality growth understated by the same magnitude. (c) 2009 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Date: 2009
View citations in EconPapers

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2009.124.2.637 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:tpr:qjecon:v:124:y:2009:i:2:p:637-675

Ordering information: This journal article can be ordered from
http://mitpress.mit. ... me.tcl?issn=00335533

Access Statistics for this article

The Quarterly Journal of Economics is edited by Robert J. Barro, Edward L. Glaeser and Lawrence F. Katz

More articles in The Quarterly Journal of Economics from MIT Press
Series data maintained by Christopher F. Baum ().