It is important to note that under the 'matched model' approach only substitution price changes, or quotes, are eligible for hedonic quality adjustments.Īs previously announced, the Bureau of Labor Statistics (BLS) is extending the use of quality adjustments derived from hedonic models in the CPI. 2 This method controls for quality changes based on the difference in product specifications or characteristics between two items when a substitute observation, or quote, occurs in the price index sample. Of the three different approaches or methods that use the results from hedonic regression models to quality adjust price indexes, BLS employs the 'matched model' method in its official indexes. This quality adjusted empirical result provides a more refined measure of price inflation for Major Appliances since there are a greater number of "pure" price changes used to calculate this item stratums' price index. Consumer Price Index (CPI) for Major Appliances would have increased 0.6 percent instead of the official index increase of 0.8 percent if hedonic quality adjustment methods had been applied to microwave oven (substitution) price changes from August 1999 through April 2000 (see attachment 1).
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