TY  - JOUR
AU  - Bils,Mark
AU  - Klenow,Peter J.
TI  - Quantifying Quality Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7695
PY  - 2000
Y2  - May 2000
UR  - http://www.nber.org/papers/w7695
L1  - http://www.nber.org/papers/w7695.pdf
N1  - Author contact info:
Mark Bils
Department of Economics
University of Rochester
Rochester, NY 14627
Tel: 585/275-0488
Fax: 585/256-2309
E-Mail: bils@troi.cc.rochester.edu

Peter J. Klenow
Department of Economics
579 Serra Mall
Stanford University
Stanford, CA  94305-6072
Tel: 650/725-8169
Fax: NA
E-Mail: Pete@Klenow.net
AB  - We introduce an instrumental variables approach to estimate the importance of unmeasured quality growth for a set of 66 durable consumer goods. Our instrument is based on predicting which of these 66 goods will display rapid quality growth. Using pooled cross- relatively sections of households in the 1980 through 1996 U.S. Consumer Expenditure Surveys, we estimate  quality Engel curves' for 66 durable consumer goods based on the extent richer households pay more for a good, conditional on purchasing. We use the slopes of these curves to predict the rate of quality-upgrading. Just as if households are ascending these quality Engel curves over time, we find that the average price paid rises faster for goods with steeper quality slopes. BLS prices likewise increase more quickly for goods with steeper quality slopes, suggesting the BLS does not fully net out the impact of quality-upgrading on prices paid. We estimate that quality growth averages about 3.7% per year for our goods, with about 60% of this, or 2.2% per year, showing up as higher inflation rather than higher real growth.
ER  -