{"id":1171,"date":"2014-11-06T14:27:06","date_gmt":"2014-11-06T19:27:06","guid":{"rendered":"http:\/\/olduvai.ca\/?p=1171"},"modified":"2014-11-06T14:27:07","modified_gmt":"2014-11-06T19:27:07","slug":"manipulating-the-consumer-price-index-hedonic-quality-adjustments-the-consumer-price-illusion","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=1171","title":{"rendered":"Manipulating the Consumer Price Index: Hedonic Quality Adjustments | The Consumer Price Illusion"},"content":{"rendered":"

Manipulating the Consumer Price Index: Hedonic Quality Adjustments | The Consumer Price Illusion<\/a>.<\/p>\n

Have you heard the one about CPI?<\/p>\n

Suppose that a TV manufacturer retires a product and replaces it with a newer, better, and much more expensive one.\u00a0If the new TV costs 5 times more than the old one, how can we\u00a0manipulate the hell out of<\/del>\u00a0massage the price of the old TV to make it look like the price fell? By using the dark arts of econometrics,\u00a0my son!<\/strong><\/p>\n

If you believe the public comments made by the world\u2019s central bankers, the prices that consumers pay for items are not rising fast enough; in some places like Europe they worry that prices might actually fall (a tragedy for the possessing classes, as their manic one-way long bets might not work then).Central bankers are terrified of this outcome.\u00a0<\/strong>Setting aside for a second the apparent insanity of this logic for your average consumer, who experiences price rises on a near continuous basis, let\u2019s examine in detail one of the\u00a0jokes<\/del>\u00a0gauges economists\u00a0use for measuring prices: the Consumer Price Index (CPI).<\/p>\n

Ostensibly, the CPI is a linear combination of the \u201cprices\u201d of things\/stuff consumers could actually purchase weighted by a percentage that the \u201cideal consumer\u201d spends on any particular stuff\/thing in his \u201cideal\u201d basket. The main problem here is that the \u201cprices\u201d used are not the prices a consumer would actually pay; instead the real price for an item is scaled by what the BLS calls a \u201cHedonic Quality Adjustment (HQA)\u201d. The HQA was designed to solve a real world problem economists face: the market keeps pumping out new and better devices.\u00a0In practice the HQA is used to artificially depress the prices used in the calculation of the CPI.<\/strong><\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Manipulating the Consumer Price Index: Hedonic Quality Adjustments | The Consumer Price Illusion. Have you heard the one about CPI? Suppose that a TV manufacturer retires a product and replaces it with a newer, better, and much more expensive one.\u00a0If the new TV costs 5 times more than the old one, how can we\u00a0manipulate the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[926,172,202,925,426,927],"class_list":["post-1171","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bls","tag-cpi","tag-deflation","tag-econometrics","tag-inflation","tag-manipulation"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/1171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1171"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/1171\/revisions"}],"predecessor-version":[{"id":1172,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/1171\/revisions\/1172"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}