Errors in Output Deflators Revisited: Unit Values and the Producer Price Index

Donald Siegel

Economic Inquiry, 1994, vol. 32, issue 1, 11-32

Abstract: Output prices are mismeasured because of inadequate adjustments for changes in product quality. Thus, when quality improves, inflation will be systematically overstated. In this study, the author finds that the most commonly used indicator of the rate of inflation, the producer price index, misses about 40 percent of the change in quality. However, he also finds that the mismeasurement of output prices is constant over time, implying that errors of measurement are not a significant determinant of either the slowdown or recent acceleration in manufacturing productivity. Copyright 1994 by Oxford University Press.

Date: 1994
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