Mike Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy. While the hedonic index approach needs only to be a measure of the compensating variation required to keep utility constant, the explicit quality adjustment. IDK much about CPI because I'm not from the US, but in my country the IPC index (which is similar) has a lot of massage really hurts its usefulness. Inflation is typically used for measuring purchasing power. And what you find is those tend to be very, very close to what the government finds.” Yes, but hedonic adjustment is basically an attack of the bottom line of inflation as an useful metric IMO. “So the government, I think, does a very good job of tracking inflation, and I think one check on the government is there are lots of private estimates of inflation. So the hedonic situation, the hedonic adjustment if you will, is a technique that goes through products like vehicles, and says if there’s any quality adjustments we’re going to back out the additional cost of those.” That’s making the new vehicles be able to do things, find directions, et cetera, better. That’s obviously going to increase the price of a vehicles, but we wouldn’t want to say that’s inflation because that’s a new feature. And what if, for example, you go back a few years ago, GPS features were added. “For example, what if we’re tracking the price of vehicles. That’s just a big, fancy term for adjusting for quality features of a product.” And then this matter of hedonic adjustments. The inflation numbers I quote are inclusive of all those. For example, food and fuel sometimes are left out. “First of all, there are measures of inflation that restrict the prices of particular products in there. Furthermore, it turns out that the assumption of an underlying linear utility function provides a rationale for hedonic regression models, which will be studied. “Just the other day I gave a talk, and one of the questions I had when I was talking about inflation was a gentleman said, ‘Well what about these hedonic adjustments? Aren’t they fake? Don’t they really make the inflation rate lower than it actually is?’ So let me explain what’s going in the measurement of inflation.” Should we trust the reported inflation numbers?” They wonder if all products and services are included in the measure, and they also hear about things like hedonic adjustments to prices. Mike, although the reported inflation rate has been very low recently, many people are suspicious of this number. “Today’s program looks at inflation and product quality.
0 Comments
Leave a Reply. |