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Hedonic Imputation versus Time Dummy Hedonic Indexes

Hedonic Imputation versus Time Dummy Hedonic Indexes

Chapter:
(p.161) 4 Hedonic Imputation versus Time Dummy Hedonic Indexes
Source:
Price Index Concepts and Measurement
Author(s):
W. Erwin Diewert, Saeed Heravi, Mick Silver
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226148571.003.0005

This chapter deals with the “direct characteristics method” approach, in which the index change between two periods is computed using separate hedonic functions estimated for each period. It compares this method, which is called the “hedonic imputation method,” to the usual time dummy approach to hedonic regressions, and derives the exact conditions under which the two approaches to hedonic regressions will give the same two main and quite distinct approaches to the measurement of hedonic price indexes: time dummy hedonic indexes and hedonic imputation indexes. The chapter considers both weighted and unweighted hedonic regressions and finds exact algebraic expressions that explain the difference between the hedonic imputation and time dummy hedonic regression models. The weighting is chosen so that we are actually in a matched model situation for the two periods being considered, then the resulting hedonic regression measures of price change resemble standard superlative index number formulae.

Keywords:   direct characteristics method, hedonic imputation method, index number formulae, hedonic regression models, matched model, price index

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