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

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.


Ana M. Aizcorbe and Jan de Haan

JEL Code(s) C43 E31 Published