Economics at your fingertips  

Hedonic Regressions, Matched Models and Economic Theory

Enrico D'Elia ()

MPRA Paper from University Library of Munich, Germany

Abstract: Quality adjustment of price indexes affects the analysis of many sensitive economic issues, such as real growth, productivity, international competitiveness, real wages, per-capita consumption and poverty, other than inflation. Hedonic methods are often recommended and increasingly used in the compilation of consumer price indexes. Nevertheless many official statistical agencies continue adopting traditional methods considering only the dynamics of prices of products matching in two adjacent periods of time. Indeed, a number of studies have even recently remarked that hedonic methods sometimes provide results very similar to the traditional matching models approach, particularly when models included in price index sample are replenished frequently. This paper briefly surveys the economic theory behind hedonic and traditional quality adjustment methods, and demonstrates that average price changes estimated by hedonic regressions differ from matched models estimation only because of the sum of regression residuals associated to disappearing and new models included in the sample. Thus, hedonic regressions including among the explanatory variables some indicators of the novelty and oldness of models provide exactly the same results of traditional methods. This fact casts some doubt on the overall effectiveness of hedonic methods in quality adjustment. The paper also focuses on that some economic and statistical hypotheses underlying hedonic methods possibly conflict with the assumptions and practices embodied in compiling the harmonised index of consumer prices for European countries.

Keywords: Consumer price index; Harmonised Index of Consumer Prices (HICP); Hedonic regressions; Matched models; Measurement of inflation; Quality adjustment (search for similar items in EconPapers)
JEL-codes: C43 C82 E31 (search for similar items in EconPapers)
Date: 2008-04
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) original version (application/pdf)

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:

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

Page updated 2023-04-22
Handle: RePEc:pra:mprapa:36178