![]() To illustrate the mechanics of a hedonic quality adjustment, it helps to begin with the generalized form of the hedonic regression equation: Hedonic models are estimated about every two years to capture new innovations in the marketplace, or to reflect changes to the value estimates of existing characteristics. The estimate for long sleeves is interpreted as the portion of the shirt’s price that can be attributed to the presence of long sleeves. For instance, in the men’s shirts hedonic model, sleeve length is an estimated characteristic. In those item categories where the CPI uses the hedonic method, BLS economists use a statistical technique called regression modeling to estimate a value for each characteristic these values sum to the price of the item. See the Quality Adjustment webpage for a list of items for which the CPI uses hedonic based quality adjustments to account for quality change.ĬPI data collectors obtain the price and a full description of each item in the CPI sample. The CPI uses hedonic quality adjustments in item categories that tend to experience a high degree of quality change either due to seasonal changes, as in apparel items, or because of innovative improvements and technological changes, as in consumer appliances and electronics. ![]() Hedonic regression models are estimated to determine the value of the utility derived from each of the characteristics that jointly constitute an item. The CPI obtains the value estimates used to adjust prices through the statistical technique known as regression analysis. In price index methodology, hedonic quality adjustment has come to mean the practice of decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes. The use of the word “hedonic” to describe this technique stems from the word’s Greek origin meaning “of or related to pleasure.” Economists approximate pleasure to the idea of utility – a measure of relative satisfaction from consumption of goods. Hedonic quality adjustment refers to a method of adjusting prices whenever the characteristics of the products included in the CPI change due to innovation or the introduction of completely new products. Hedonic quality adjustment is one of the techniques the CPI uses to account for changing product quality within some CPI item samples. While this method is sometimes acceptable, it biases the CPI if new version price changes are systematically different from the price changes of the unchanged goods. The traditional CPI solution to this problem is to temporarily remove an item from the sample when its quality has changed. To measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change. This change in benefit is quality change. The new version of the item may provide additional benefits or, in some cases, reduced benefits. In many categories of items, this is the primary time when price change occurs. A fundamental problem for the goods and services in the CPI sample is that their characteristics, not just their prices, change over time as the retailers introduce new versions of items and discontinue the older versions. The CPI measures the average change in price over time of consumption goods and services by following the prices of a representative sample of consumption items in the retail establishments that sell them. Would you walk through another example at a more detailed level?.Can you explain how the CPI uses the hedonic regression model to estimate and apply a quality adjustment?.How does the hedonic method estimate the value of quality change?.What items in the CPI are hedonically adjusted?.Why does the CPI adjust prices for changes in quality?.Frequently Asked Questions about Hedonic Quality Adjustment in the CPI
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |