Using a Hedonic Model to Adjust Television Prices in the
Consumer Price Index for Changes in Quality
Effective with the release of the Consumer Price Index (CPI)
for January 1999, the Bureau of Labor Statistics (BLS) will
introduce an improvement in its calculation of the television
stratum of the CPI.
As of December 1997, "Televisions" constituted 0.215
percent in the Consumer Price Index for All Urban Consumers (the
CPI-U) and 0.256 percent in the Consumer Price Index for Urban
Wage Earners and Clerical Workers (the CPI-W).
Bureau of Labor Statistics researchers developed a regression
procedure, called a hedonic model, that decomposes the price of
television sets into implicit prices for each important feature
and component1.
This model uses television observations collected for the CPI and
provides an estimate of the value of each of the significant
features and components of the sets for which prices are
collected. This yields a mechanism for replacing obsolete
televisions in the CPI sample with current ones, allowing the CPI
to capture the price change that may occur as new models replace
old ones in the market place without counting the value of
quality improvements as price increases.
The CPI has used similar hedonic methods to adjust apparel
prices for many years. In January 1998, the CPI began using a
similar approach for "Personal Computers". In the
coming years, BLS plans to extend the method to additional CPI
items.
Starting with the CPI for January 1999, when a television
model in the CPI sample improves in some way, the value of that
change, as derived from the regression estimates, will be
deducted from the observed price change for that product.
(Conversely, if a model deteriorates, the value of the difference
will be added to the price.)
For additional information on these changes, write to
Bureau of Labor Statistics
Division of Consumer Prices and Price Indexes
2 Massachusetts Ave. NE, Room 3260
Washington, DC 20212
or telephone Tim LaFleur at (202) 606-6982 ext. 253,
or send e-mail to Lafleur.Tim@bls.gov
1 Brent R. Moulton, Timothy J. LaFleur, and Karin E.
Moses, "Research on Improved Quality Adjustment in the CPI:
The Case of Televisions," presented to the Conference of the
Ottawa Group, April 1998.
Last Modified Date: June 16, 2003
