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ERRORS IN OUTPUT DEFLATORS REVISITED: UNIT VALUES AND THE PRODUCER PRICE INDEX
Author(s) -
Siegel Donald
Publication year - 1994
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1994.tb01310.x
Subject(s) - economics , inflation (cosmology) , slowdown , econometrics , price index , index (typography) , producer price index , productivity , industrial production index , quality (philosophy) , consumer price index (south africa) , output gap , monetary economics , price level , production (economics) , macroeconomics , monetary policy , mid price , physics , theoretical physics , world wide web , computer science , philosophy , epistemology , economic growth
Output prices are mismeasured because of inadequate adjustments for changes in product quality. Thus, when quality improves, inflation will be systematically over‐stated. In this study, I find that the most commonly used indicator of the rate of inflation, the Producer Price Index, misses about 40 percent of the change in quality. However, I also find that the mismeasurement of output prices is constant over time, implying that errors of measurement are not a significant determinant of either the slowdown or recent acceleration in manufacturing productivity.