Resum:
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This paper computes and compares alternative quality-adjusted price indexes for new
cars in Spain in the period 1990-2000. The proposed hedonic approach simultaneously
controls for time-invariant unobserved product effects and time-variant unobserved quality
changes, that are assumed to be captured by model age effects. The results show that the
non-adjusted price index largely overstates the increase in the cost of living induced by
changes in car prices and that previous evidence for this market have not measured the
real extent of that bias, probably due to the omission of controls for unobservables. It is
also shown that omitting age effects can also lead to misleading conclusions. The estimated
price indexes give also some insights on what could have been the determinants of price
evolution in the Spanish car market.
JEL classi…fication numbers: C43, E31, L11, L13,
Keywords: Hedonic price indexes, Spanish car market, car prices, CPI, Cost of living |