Quality Adjustment at Scale: Hedonic versus Exact Demand-Based Price Indices

American Economic Review 2026

View at publisher
Authors: Gabriel M. Ehrlich, John Haltiwanger, Ron Jarmin, David Johnson, Ed Olivares, Luke Pardue, Matthew D. Shapiro, Laura Yi Zhao
DOI: 10.1257/aer.20230766
Cited by: 1
References: 24

Abstract

Item-level transactions data yield cost-of-living indices that can account for quality change and consumer substitution. Transactions data require confronting the rapid turnover of items because prices of new and existing products are interrelated in equilibrium. This paper evaluates multiple approaches to measuring quality change at scale. It shows that a hedonic superlative approach—using econometrics or machine learning for hedonic estimation combined with index formulas that require simultaneous observation of item-level price and expenditure—yields improved measures of the cost of living. Accounting for ubiquitous quality change and for consumer substitution yields lower measures of inflation than traditional, official methods. (JEL C43, C45, E31, L15, L81)

Fields of Study & Subjects

Financial Markets and Investment Strategies Auditing Earnings Management Governance Efficiency Analysis Using DEA

Publication details

Journal / source
American Economic Review
Publisher
American Economic Association
Volume
116
Issue
6
Pages
1955–1995
Publication date
28 May 2026
Language
EN