Technical Report Effects of the Entry and Exit of Products on Price Indexes

Abe, Naohito  ,  Inakura, Noriko  ,  Tonogi, Akiyuki

2017-03 , Institute of Economic Research, Hitotsubashi University
This study analyzes the effects of product turnover for price measurements. In addition to variety effects, we consider the effects of the price differentials between new and incumbent products. The decomposition of a unit value price index (UVPI) into price change effects, substitution effects, and turnover/new product effects reveals the magnitude and sources of differences between the UVPI and the Cost of Living Indexes with variety effects. Using a large-scale scanner data, we find that the product turnover effects that reflect the price gap between new and old goods are quantitatively important when constructing a general price level index.

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