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The Problem of Quality Change in Historical Price Statistics: An Illustrative Example Using Baedeker Travel Guides

Author

Listed:
  • Jarod Coulter
  • Braden Strackman
  • Mark A. Wynne

Abstract

The problem of accurately measuring inflation in the face of constant improvement in the quality of goods is a long-standing one in economics. This paper uses a novel dataset on the prices of the travel guidebooks published by the German publishing house Baedeker between 1832 and 1944 to construct a hedonic price index for guidebooks. Comparing these indexes to the list prices of these guidebooks, we show that the failure to adjust for improvements in the quality of the guidebooks over time imparts a substantial upward bias to measured inflation. For example, for German-language guidebooks, nominal prices increased 76 percentage points more than quality-adjusted prices between 1843–1913, suggesting an average upward bias over this period of 1.1 percentage points a year. Similarly, we find substantial average upwards bias of 1.5 and 1.7 percentage points a year for French-language guidebooks over 1859–1913 and English-language guidebooks over 1868–1913, respectively.

Suggested Citation

  • Jarod Coulter & Braden Strackman & Mark A. Wynne, 2024. "The Problem of Quality Change in Historical Price Statistics: An Illustrative Example Using Baedeker Travel Guides," Working Papers 2415, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:99213
    DOI: 10.24149/wp2415
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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. W. M. Gorman, 1980. "A Possible Procedure for Analysing Quality Differentials in the Egg Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(5), pages 843-856.
    3. Tim Erickson & Ariel Pakes, 2011. "An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods," American Economic Review, American Economic Association, vol. 101(5), pages 1707-1738, August.
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    More about this item

    Keywords

    inflation measurement; quality change; measurement bias;
    All these keywords.

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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