Hedonic price indexes under static pricing: an application to PPI microprocessors

Abstract Price change for microprocessors largely coincides with product turnover. This static pricing challenges some price index methods and makes accounting for quality change paramount in designing price indexes. We evaluate the performance of several hedonic methods of quality adjustment under static pricing. We find the relative performance of these methods depends on sample size. For the small product samples feasible for microprocessors, the low variance of time-dummy hedonics gives them an advantage over less simple specifications, but with the potential downside of being more biased.