Friday, October 18, 2019
Hedonic Method in the Consumer Price Index Case Study
Hedonic Method in the Consumer Price Index - Case Study Example The thus, Hedonic Pricing model will mostly be used in estimating the extent each of the factors affects the price. Ã The hedonic method is used in tracking changes in the CPI so that quality adjustments to the CPI can be made. The purpose of the Consumer Price Index is measuring effects on consumer household by price changes. The preferred method that is used to make quality adjustments is the Hedonic method. This is because it relies on statistical techniques when it estimates implicit prices of characteristics of a product derived from quantities and prices in the marketplace. This implicit price is used to measure the value of qualitative differences observed in products by consumers (Bade, & Michael, 2002). This helps disaggregate observed price difference between two products into pure price change and changes in quality. Hedonic methods have gone on to be proposed to be used in other categories of goods and services in the Consumer Price Index. Ã The statistical techniques involved in the hedonic methods make it suitable for use in tracking even the minimal changes in the CPI. Changes like those in quality are at times overlooked but by use if this method they are tracked and adjusted.