Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198889 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7529
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Changes in product characteristics on the extensive margin are an important and hitherto neglected dimension of quality change. Standard techniques for quality-adjusting price indices cannot handle such changes satisfactorily, which leads to an economically and statistically significant bias in the measurement of prices and real output. We combine theoretical insights from index numbers and demand for characteristics to develop a new method for incorporating changes on the extensive characteristic margin. Applied to data on new car sales in the U.K., our method leads to revisions in estimated inflation rates for this commodity group that are both plausible and quantitatively important.
Subjects: 
extensive and intensive margins of consumption
characteristics model
quality change
Sato-Vartia-Feenstra index numbers
JEL: 
C90
C91
C92
D03
Document Type: 
Working Paper
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