Econometrics Commons^™

Age Effects, Unobserved Characteristics And Hedonic Price Indexes: The Spanish Car Market In The 1990'S, Xosé-Luís Varela-Irimia

Xosé-Luís Varela-Irimia

This paper computes and compares alternative quality-adjusted price indexes for new cars in Spain in the period 1990-2000. The proposed hedonic approach simultaneously controls for time-invariant unobserved product effects and age effects, that can be interpreted as a proxy for time-variant unobservables. The results show that the non-adjusted price index largely overstates the increase in the cost of living induced by changes in car prices and that the previous evidence for this market have not measured the real extent of that bias, probably due to the omission of controls for unobservables. It is also shown that omitting age effects can …