The FEWS Index: Fixed Effects with a Window Splice

Frances Krsinich 1
  • 1 Statistics New Zealand – Prices Unit, PO Box 2922 Wellington 6041, New Zealand.

Abstract

This article describes the estimation of quality-adjusted price indexes from ‘big data’ such as scanner and online data when there is no available information on product characteristics for explicit quality adjustment using hedonic regression. The longitudinal information can be exploited to implicitly quality-adjust the price indexes. The fixed-effects (or ‘time-product dummy’) index is shown to be equivalent to a fully interacted time-dummy hedonic index based on all price-determining characteristics of the products, despite those characteristics not being observed. In production, this can be combined with a modified approach to splicing that incorporates the price movement across the full estimation window to reflect new products with one period’s lag without requiring revision. Empirical results for this fixed-effects window-splice (FEWS) index are presented for different data sources: three years of New Zealand consumer electronics scanner data from market-research company GfK; six years of United States supermarket scanner data from market-research company IRI; and 15 months of New Zealand consumer electronics daily online data from MIT’s Billion Prices Project.

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