Working Paper

The Problem of Quality Change in Historical Price Statistics: An Illustrative Example Using Baedeker Travel Guides

Abstract: The problem of accurately measuring inflation in the face of constant improvement in the quality of goods is a long-standing one in economics. This paper uses a novel dataset on the prices of the travel guidebooks published by the German publishing house Baedeker between 1832 and 1944 to construct a hedonic price index for guidebooks. Comparing these indexes to the list prices of these guidebooks, we show that the failure to adjust for improvements in the quality of the guidebooks over time imparts a substantial upward bias to measured inflation. For example, for German-language guidebooks, nominal prices increased 76 percentage points more than quality-adjusted prices between 1843–1913, suggesting an average upward bias over this period of 1.1 percentage points a year. Similarly, we find substantial average upwards bias of 1.5 and 1.7 percentage points a year for French-language guidebooks over 1859–1913 and English-language guidebooks over 1868–1913, respectively.

Keywords: inflation measurement; quality change; measurement bias;

JEL Classification: C8; E3; N1;

https://doi.org/10.24149/wp2415

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2024-11-26

Number: 2415