Hedonic prices indexes for new passenger cars in Portugal (1997-2001)

In this paper we study the effects of quality change on the price index for new passenger cars in Portugal for the years 1997-2001. Hedonic regression models are studied, giving particular emphasis to the relation between the form of the price index and the specification of the hedonic equation and estimation method used. The results indicate that the CPI component correponding to this item may have been overestimated by as much as 2.2 percentage points per year. This corresponds to an overestimation of the overall CPI by about 0.15 percentage points per year. As a by-product of the analysis it is also possible to conclude that the the quality of new cars sold in Portugal increased on average 4.8 per cent per year during this period.