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Consumer Price Index
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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.)
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