Definition: Hedonic method

Consumer Price Index

A regression model in which the market prices of different products are expressed as a function of their characteristics. Non-numerical characteristics are represented by dummy variables. Each regression coefficient is treated as an estimate of the marginal contribution of that characteristic to the total price. The estimates may be used to predict the price of a new product for which the mix of characteristics is different from that of any product already on the market. The hedonic method can therefore be used to estimate the effects of quality changes on prices.
Source:
International Labour Organization (ILO), International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), Statistical Office of the European Communities (Eurostat), United Nations (UNECE), The World Bank, Consumer Price Index Manual: Theory and Practice, Geneva, August 2004
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