On Quality and Variety Bias in Aggregate Prices

Masashige Hamano, Francesco Zanetti

    Research output: Contribution to journalArticle

    Abstract

    How do product variety and quality affect the aggregate price bias? We develop a general equilibrium model that accounts for the joint interaction of product quality and variety. Our findings show that the aggregate price bias is procyclical and the contribution of product variety is persistent whereas the contribution of product quality becomes countercyclical in the medium to long run. We show that accounting for product quality and variety has critical implications on the measure of cyclical fluctuations. Measurements of cyclical fluctuations derived using the consumption deflator, which abstracts from changes in product quality and variety, underestimate the variables' true volatility.

    Original languageEnglish
    JournalJournal of Money, Credit and Banking
    DOIs
    Publication statusAccepted/In press - 2018 Jan 1

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    Keywords

    • Firm's entry and exit
    • Product quality
    • Product variety

    ASJC Scopus subject areas

    • Accounting
    • Finance
    • Economics and Econometrics

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