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  4. Winter 1998
  5. Quality Change in Price Indexes

Quality Change in Price Indexes

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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.

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

JEL Classification

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