This paper evaluates the effects of product turnover on a welfare-based cost-of-living index by incorporating the quality effect and the fashion effect. Employing scanner data for Japan for the years 1988–2013, we find that (i) the price and quantity of a new product tend to be higher than those of its predecessor at its exit; (ii) a considerable fashion effect exists for the entire sample period, while the quality effect is declining over time; and (iii) the discrepancy between the cost-of-living index estimated based on our methodology and the price index constructed only from a matched sample is not large.
Ueda, Kozo, Kota Watanabe, and Tsutomu Watanabe.
"Product Turnover and the Cost-of-Living Index: Quality versus Fashion Effects."
American Economic Journal: Macroeconomics,
Index Numbers and Aggregation; Leading indicators
Price Level; Inflation; Deflation
Production, Pricing, and Market Structure; Size Distribution of Firms
Information and Product Quality; Standardization and Compatibility
Retail and Wholesale Trade; e-Commerce