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
Pages (from-to)1343-1363
Number of pages21
JournalJournal of Money, Credit and Banking
Volume50
Issue number6
DOIs
Publication statusPublished - 2018 Sep

Keywords

  • D24
  • E23
  • E32
  • L11
  • L60
  • firm's entry and exit
  • product quality
  • product variety

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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