Using Hedonic Methods for Quality Adjustment in the CPI

There has been a strong recommendation that the BLS explore the use of hedonic regression methods for quality adjustment in the Consumer Price Index (CPI). Until recently data limitations have made this goal difficult to implement for many categories of goods and services. This paper reports the preliminary results of employing data purchased by BLS from an outside source to produce hedonic regression-based quality-adjusted price indices for consumer audio electronics products. The effects of hedonic-based quality adjustment are examined. Hedonic indices are derived directly from the regression coefficients, and compared to the adjusted CPI values. Issues of regression specification, and practical problems for CPI quality adjustment are also addressed.