Inferring Prices from Quantities

David Argente, Chang-Tai Hsieh and Munseob Lee

No 34803, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Measuring aggregate inflation is subject to two opposing biases: unobserved quality and variety growth, and the use of incorrect weights when new varieties are misclassified. We show that it is possible to measure an aggregate price index free of these biases when we have a subset of products where these two errors average to zero. This procedure does not require us to distinguish new from existing goods, measure quality attributes directly, or classify new varieties into the appropriate category. We implement this approach using BEA data from 1959 to 2019, approximating the official PCE price index with a CES aggregate of BEA prices at the product level. Our estimate of the inflation rate exceeds the CES aggregate of BEA prices by 0.3 to 1.0 percentage points per year on average. The aggregate bias was close to zero prior to the BLS introducing hedonic adjustments, which suggests that only adjusting for quality bias can lead to an underestimation of overall inflation, particularly in quality-adjusted categories.

JEL-codes: D11 D12 E01 E31 (search for similar items in EconPapers)
Date: 2026-02
Note: EFG ME PR
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34803.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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: https://EconPapers.repec.org/RePEc:nbr:nberwo:34803

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34803
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().