A Chain-Type Price Index for New Business Jet Aircraft

Industry-Specific Price Indices Yield Valuable Insights

Cho By Dong W. Cho

Dong W. Cho is a professor of economics at Wichita State University. He earned a Ph.D. from the University of Illinois and a B.A. from Seoul National University. He has frequently provided economic analyses to the general aviation industry, and his research in the field appeared in Applied Economics and Logistics and Transportation Review. His research in forecasting evaluation was published in Journal of Economics and Business, Business Economics, and International Journal of Forecasting.

This paper presents a price index constructed to measure the real price and real output of corporate business jet aircraft. It employs a chained price index methodology to properly account for the effect of changes in aircraft quality and product lines on the price index. The index indicates that the average price level of corporate jets has significantly outpaced the general price level measured by the GDP deflator, nearly doubling the real price of the product over a 35-year period from 1968 to 2003, which could have negatively affected the demand for the product. Because the GDP deflator significantly understates the price increase in corporate jets, the industry’s real output is overstated when its nominal sales are deflated with a general price index. The paper suggests that an industry-specific price index allows more accurate analyses of real economic activity of an industry. The methodology used in this paper could be useful for other industries where product price movements vary significantly from the changes in the general price level.

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