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Journal of Economic Perspectives: Vol. 12 No. 1 (Winter 1998)

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Quality Change in Price Indexes

Article Citation

Nordhaus, William D. 1998. "Quality Change in Price Indexes." Journal of Economic Perspectives, 12(1): 59-68.

DOI: 10.1257/jep.12.1.59

Abstract

Price indexes provide the fundamental building blocks for measuring the general price level along with real incomes and real output. But the most important single price index for the United States, the CPI, has been criticized as significantly underestimating the pace of quality change. This paper sketches the issues involved in the measurement of quality change in price indexes. It reviews the theory of quality change, discusses how the Bureau of Labor Statistics deals with quality change, and provides examples of measurement issues in practice. It concludes with a proposal to resolve the massive uncertainties in this area.

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Authors

Nordhaus, William D. (Yale U)

JEL Classifications

E31: Price Level; Inflation; Deflation
C43: Index Numbers and Aggregation; leading indicators

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