Accurate price indexes are crucial for preparing accurate estimates of real gross domestic product and corresponding productivity measures. The price index must capture price change for a ‘relevant’ market basket goods, while at the same time controlling for changes in characteristics and/or quality of these goods. Traditional price indexes (i.e. ‘matched model’) are well suited to capturing price change for goods that exhibit little or no quality change over time, however, for products whose characteristics and/or quality are changing rapidly (e.g. ICT goods), hedonic methods may be more suitable.
This paper provides a brief history of hedonic methods employed by U.S. statistical agencies and specifically examines the role of hedonic price indexes in the U.S. National Income and Product Accounts. It also attempts to dispel some popular misconceptions about hedonic methods.