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

Mark Bils

The Quarterly Journal of Economics, 2009, vol. 124, issue 2, 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.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (92)

Downloads: (external link)
http://hdl.handle.net/10.1162/qjec.2009.124.2.637 (application/pdf)
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: https://EconPapers.repec.org/RePEc:oup:qjecon:v:124:y:2009:i:2:p:637-675.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().