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An Application of the Oaxaca-Blinder Decomposition to the Price Deflation Problem

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  • Ana M. Aizcorbe
  • Jan de Haan

Abstract

We apply the Oaxaca-Blinder decomposition method used in the labor literature to split changes in average prices into inflation and quality components. The inflation measure is a full imputation Törnqvist price index. Using this index to deflate nominal spending properly allocates changes in the quality of goods to changes in real spending, not inflation.

Suggested Citation

  • Ana M. Aizcorbe & Jan de Haan, 2024. "An Application of the Oaxaca-Blinder Decomposition to the Price Deflation Problem," BEA Papers 0126, Bureau of Economic Analysis.
    • Handle: RePEc:bea:papers:0126
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    File URL: https://www.bea.gov/system/files/papers/BEA-WP2024-2.pdf
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    References listed on IDEAS

    as
    1. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
    2. Reimers, Cordelia W, 1983. "Labor Market Discrimination against Hispanic and Black Men," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 570-579, November.
    3. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
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    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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