When Do Chained Deflators for IT Goods Overstate Quality Change?

In general, chained deflators for IT goods will have a commingling problem that causes them to overstate quality growth. We base this on a comparison of chained superlative indexes with a multilateral index that does not have the commingling problem—the weighted time product dummy index. Empirical results from three recent studies suggest that this can occur often—we saw this in 9 of the 12 categories studied—and that the gaps can be nontrivial. We argue that the recently developed multilateral methods may be a better strategy in price measurement for this sector.