The Analysis On Hedonic Price Index

The Price index is an important economic statistics of the country. From the changes of price index,we can judge how the cost of living expenditures of residents and the cost of production are changing.We can see from the price index,weather a country's economy is in a case of inflation or deflation phase,making rational monetary policy,judging the real level of capital accounts and GDP.So the Accuracy of price index is very important for the economic decision-making.Traditional method for constructing price index is the matched model method.First of all,in order to avoid quality changes,the index compilers uses judgmental sampling.They chose package of products whose quality is not easy to change between the current period and the base period,and then use matched model method to calculate its respective price index, and then use index formula to calculate the integrated price index. Especially in recent years,the growing popularity of fast updating products such as computers,electronic products,cars etc.makes it very necessary to calculate their price index.How to deal with the quality adjustment of price index issue has become an important part of national price index statistics.Countries like The United States,Britain,New Zealand,Japan and several European countries have begun the research on quality adjusted price index,and also have drawn a number of specific methods,the traditional quality adjustment methods are direct comparison method,overlapping method,link-to-show-no-price-change method,double imputation method,production cost quality adjustments, option cost method.All the various methods Has its advantages and disadvantages and the correspond case to use,but they usually constitute subjective judgment factors,and is easier to result biased estimates.In recent years,economists have been introducing regression technique to the quality adjustments,and gained good results.This method is known as hedonic price index adjustment.However,as we all know,there are very few types of product whose quality doesn't change.That is to say,price changing will include part of quality change factors,so it is not pure price changes,which can indicate inflation or deflation.It made us cannot continue to use the matched model method.Hedonic quality adjustment methods are being widely applied in recent years to resolve item replacement problems in price index calculation.It uses hedonic function to adjust the quality changes. The hedonic function is the relationship between the price and characteristics of the product.And It is combined closely with econometrics and statistics,so is more scientific and accurate Currently,it has been applied to computers,housing,automobiles, electronics products and household equipment price adjustment abroad. For our country,there is still a research gaps on this field,and therefore it is very necessary to learn from foreign experience,and establish a quality adjusted price index which fits China's actual situation,especially the introduce of complete,scientific and robust methods will give us a short way on our research and application in this area.Based on this objective, this article mainly focuses on the research and summarization of the quality adjusted price index methodology,particularly the hedonic quality adjustment methods.On the basis of systematical theoretical analysis,I concluded the principles of hedonic method,the conditions to use it,the steps to use it,and discussed problems lying in its application.Taking the United States and New Zealand as an example,I stated its application in other countries.Finally,I discussed the necessary for our country to use it, the existing problems when using it,and suggested some solutions.Then taking urban housing and notebook computers as an example,carried out empirical analysis of the application of hedonic quality adjustment method in price indices.