Direct and indirect time dummy approaches to hedonic price measurement.

This paper has two aims. First, it shows how the time dummy method to adjust for quality changes fits into the methodology of statistical agencies applying a geometric mean price index formula at the elementary aggregation level. Second, the paper argues that the ordinary or direct time dummy approach cannot cope with systematic price effects of new and disappearing products. Several 'indirect' alternatives are discussed in which the time dummy coefficient serves as a common adjustment factor and in which systematic effects of new or disappearing products are explicitly taken into account. Special attention is paid to the role of the sampling design, in particular proportional to expenditure sampling. [ABSTRACT FROM AUTHOR]