Measuring unobserved prices using the structural time-series model: The case of cycling

This study presents a means of determining a historic (generalised cost based) price index for cycling in the UK for the period 1949-2006 using annual demand data. By specifying demand as a function of generalised price and income and then applying a structural time-series model to elucidate the unobserved component of prices (while controlling for observed income levels), it is illustrated that the role of prices in influencing demand is non-trivial. Over the sample period price responses generally influence demand for cycling to a greater extent than income effects.