![]() ![]() Hedonics opens the door to producing magical results: a lower inflation rate with generally rising prices, a higher growth rate although the economy may be weaker, and a higher productivity number, although productivity would have been declining without the hedonic imputations. Likewise, given a constant labor input, productivity will increase. With a lower inflation rate, the transformation of nominal gross domestic product (GDP) into real GDP will render a higher result. This way, a product may be on the market at a higher price, but when the product qualities have augmented more than the price in the eyes of the BLS, it will calculate that the price of this product has actually fallen.Īpplying the hedonic technique to a host of goods and services means that even when prices were generally rising, but product improvement are deemed to be larger than the price increases, the calculated inflation rate will fall. 1 The idea behind hedonic price index calculation is to incorporate quality changes into prices. It is also the doctrine which the Bureau of Labor Statistics (BLS) applies when calculating the price indices and for the computation of the real gross domestic product and of productivity. The term “hedonics” is derived from ancient Greek and basically means “pleasure doctrine”. ![]()
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