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The Role of Hedonic Methods in Measuring Real GDP in the United States

Author

Listed:
  • David Wasshausen
  • Brent R. Moulton

    (Bureau of Economic Analysis)

Abstract
Accurate price indexes are crucial for preparing accurate estimates of real gross domestic product and corresponding productivity measures. The price index must capture price change for a ‘relevant’ market basket goods, while at the same time controlling for changes in characteristics and/or quality of these goods. Traditional price indexes (i.e. ‘matched model’) are well suited to capturing price change for goods that exhibit little or no quality change over time, however, for products whose characteristics and/or quality are changing rapidly (e.g. ICT goods), hedonic methods may be more suitable. This paper provides a brief history of hedonic methods employed by U.S. statistical agencies and specifically examines the role of hedonic price indexes in the U.S. National Income and Product Accounts. It also attempts to dispel some popular misconceptions about hedonic methods.

Suggested Citation

  • David Wasshausen & Brent R. Moulton, 2006. "The Role of Hedonic Methods in Measuring Real GDP in the United States," BEA Papers 0067, Bureau of Economic Analysis.
    • Handle: RePEc:bea:papers:0067
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    File URL: https://www.bea.gov/system/files/papers/P2006-6_0.pdf
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    References listed on IDEAS

    as
    1. Feenstra, Robert C, 1995. "Exact Hedonic Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 634-653, November.
    2. Brent R. Moulton, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-177, Fall.
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    4. Brent R. Moulton & Karin E. Moses, 1997. "Addressing the Quality Change Issue in the Consumer Price Index," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 305-366.
    5. Jack E. Triplett & Richard J. McDonald, 1977. "Assessing The Quality Error In Output Measures: The Case Of Refrigerators," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 23(2), pages 137-156, June.
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    7. repec:bla:revinw:v:23:y:1977:i:2:p:137-56 is not listed on IDEAS
    8. Paul E. Pieper, 1991. "The Measurement of Construction Prices: Retrospect and Prospect," NBER Chapters, in: Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, pages 239-272, National Bureau of Economic Research, Inc.
    9. Mick Silver & Saeed Heravi, 2003. "The Measurement of Quality-Adjusted Price Changes," NBER Chapters, in: Scanner Data and Price Indexes, pages 277-316, National Bureau of Economic Research, Inc.
    10. Robert P. Parker & Bruce T. Grimm, 2000. "Recognition of Business and Government Expenditures for Software as Investment: Methodology and Quantitative Impacts, 1959-98," BEA Papers 0002, Bureau of Economic Analysis.
    11. Frederick V. Waugh, 1928. "Quality Factors Influencing Vegetable Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 10(2), pages 185-196.
    12. Robert Gillingham, 1975. "Place to Place Rent Comparisons," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 1, pages 153-178, National Bureau of Economic Research, Inc.
    13. Zvi Griliches, 1961. "Hedonic Price Indexes for Automobiles: An Econometric of Quality Change," NBER Chapters, in: The Price Statistics of the Federal Goverment, pages 173-196, National Bureau of Economic Research, Inc.
    14. Berndt, Ernst R., 1983. "Quality adjustment in empirical demand analysis," Working papers 1397-83., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    15. Katharine G. Abraham & John S. Greenlees & Brent R. Moulton, 1998. "Working to Improve the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 27-36, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sen Chakraborty, Kritika & Chakraborty, Avinandan & Berrens, Robert P., 2023. "Valuing soil erosion control investments in Nigerian agricultural lands: A hedonic pricing model," World Development, Elsevier, vol. 170(C).
    2. Carol A. Corrado & Charles R. Hulten, 2014. "Innovation Accounting," NBER Chapters, in: Measuring Economic Sustainability and Progress, pages 595-628, National Bureau of Economic Research, Inc.
    3. Dominik Filipiak & Agata Filipowska, 2016. "Towards data oriented analysis of the art market: survey and outlook," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 12(1), pages 21-31, June.
    4. Oulton, Nicholas, 2018. "GDP and the system of national accounts: past, present and future," LSE Research Online Documents on Economics 87178, London School of Economics and Political Science, LSE Library.
    5. Hill, Robert J. & Syed, Iqbal A., 2016. "Hedonic price–rent ratios, user cost, and departures from equilibrium in the housing market," Regional Science and Urban Economics, Elsevier, vol. 56(C), pages 60-72.
    6. Filipiak Dominik & Filipowska Agata, 2016. "Towards Data Oriented Analysis of the Art Market: Survey and Outlook," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 12(1), pages 21-31.
    7. Patrick Bajari & Zhihao Cen & Victor Chernozhukov & Manoj Manukonda & Suhas Vijaykumar & Jin Wang & Ramon Huerta & Junbo Li & Ling Leng & George Monokroussos & Shan Wan, 2023. "Hedonic Prices and Quality Adjusted Price Indices Powered by AI," Papers 2305.00044, arXiv.org.
    8. Marta Arespa & Diego Gruber, 2021. "Product Quality and International Price Dynamics over the Business Cycle," Economica, London School of Economics and Political Science, vol. 88(352), pages 1054-1074, October.
    9. Knesl, Jiří, 2023. "Automation and the displacement of labor by capital: Asset pricing theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 147(2), pages 271-296.
    10. Susan Houseman & Christopher Kurz & Paul Lengermann & Benjamin Mandel, 2011. "Offshoring Bias in U.S. Manufacturing," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 111-132, Spring.
    11. David M. Byrne & Stephen D. Oliner & Daniel E. Sichel, 2013. "Is the Information Technology Revolution Over?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 25, pages 20-36, Spring.
    12. Marta Arespa & Diego Gruber, 2016. "Product Quality and International Price Dynamics," UB School of Economics Working Papers 2016/340, University of Barcelona School of Economics.
    13. repec:grz:wpaper:2012-08 is not listed on IDEAS
    14. Unel, Bulent, 2010. "Analyzing skilled and unskilled labor efficiencies in the US," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 957-967, December.
    15. Ross Gittell & Jon D. Samuels & Edinaldo Tebaldi, 2017. "The Contribution of Associate's Degree Holders to U.S. Earnings, Labor Quality, Productivity, and Overall Economic Growth," Southern Economic Journal, John Wiley & Sons, vol. 84(2), pages 600-636, October.
    16. Carlos Guerrero de Lizardi, 2009. "Contribution of the Information and Communication Technology sector to Mexican economic growth from 1999 to 2004," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 6(1), pages 11-30, Julio - D.
    17. Zyamalov, V. & Turuntseva, M., 2024. "The influence of goods' quality on their price indices," Journal of the New Economic Association, New Economic Association, vol. 62(1), pages 196-209.
    18. repec:aei:rpaper:37301 is not listed on IDEAS

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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