Effects of New Goods and Product Turnover on Price Indexes
Authors discuss the impact of new goods and product turnover on price indexes, focusing on the bias caused by ignoring entry of new products in price measurement. They examine price differentials between old and new products using monthly scanner data for food and daily products. The study decomposes the unit value index, explores substitution effects among continued products, and analyzes the price effect of product turnover.
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EFFECTS OF NEW GOODS AND PRODUCT TURNOVER ON PRICE INDEXES Naohito Abe, Toshiki Enda, Noriko Inakura, and Akiyuki Tonogi Comments by Paul Schreyer OECD Deputy Director Statistics RIETI Workshop Tokyo October 2016
Authors observe: 35% of the value of sales is for new products How does entry and exit of varieties and new products affect price indices? Or rather: given that price measurement mainly relies on comparing prices of existing products, what is the bias caused by ignoring entry? And if entry is recognised how should this happen? Study focuses on price differentials between old and new products Monthly scanner data for food and daily products 3
New good if the product exists in period ? but not in period ? ? Old good if the product does not exist in period ? but exists in period ? ? Continuing good if it exists in both periods Decomposition of unit value index: Laspeyres index of continued products Substitution effect among continued products Price effect of product turnover 4
Comment 1 Very clear paper Carefully derived relations and estimates Nothing to add on this front! 6
Comment 2 UVI is decomposed into: Laspeyres price index substitution effects turnover new goods effects Laspeyres price index corresponds roughly to official methodology What is the recommendation for CPI compilers? Move to UVI to capture substitution and turnover effects? 7
Comment 3 Products in study = food, daily necessities and cosmetics Theory used for price measurement very well adopted to this type of products many varieties, small modifications Big ticket items of new products or important quality change likely elsewhere: ICT, health, consumer durables, Can the approach be used there as well? 8
I enjoyed reading this paper! Paul.Schreyer@OECD.org 9
