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Computers and the Trade Deficit: The Case of the Falling Prices

In: International Economic Transactions: Issues in Measurement and Empirical Research

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  • Ellen E. Meade

Abstract

This paper investigates two issues related to international trade in computers: measurement and prediction. Because of the rapid technological advancement in the computer industry, the Bureau of Economic Analysis (BEA) measures computer prices using techniques that adjust for quality change. The constructed hedonic index is essentially a domestic price measure, but the BEA uses it for the deflation of international sales and purchases of computers. This paper begins with a review of the theory behind hedonic price indexes, and then proceeds to discuss the concerns that arise when a domestic index is used to deflate international transactions. ; If the computer industry is sufficiently different from other industries, separate treatment of computers in empirical models of international trade may be necessary to capture historical developments and predict future outcomes. This paper examines the simulation performance of a conventional aggregate trade model, a modified aggregate trade model, and a model that disaggregates computers. The model with computers disaggregated is shown to out-perform the other models.

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This chapter was published in:

  • Peter Hooper & J. David Richardson, 1991. "International Economic Transactions: Issues in Measurement and Empirical Research," NBER Books, National Bureau of Economic Research, Inc, number hoop91-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8427.

    Handle: RePEc:nbr:nberch:8427

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    Cited by:
    1. repec:cge:warwcg:14 is not listed on IDEAS
    2. Menzie D. Chinn, 2005. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," NBER Working Papers 11521, National Bureau of Economic Research, Inc.
    3. Menzie D. Chinn, 2005. "Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(3), pages 460-485, October.
    4. Chinn, Menzie, 2002. "Incomes, Exchange Rates and the U.S. Trade Deficit, Once Again," Center for Global, International and Regional Studies, Working Paper Series qt0tc442fc, Center for Global, International and Regional Studies, UC Santa Cruz.
    5. Carone, Giuseppe, 1996. "Modeling the U.S. demand for imports through cointegration and error correction," Journal of Policy Modeling, Elsevier, vol. 18(1), pages 1-48, February.
    6. Menzie D. Chinn, 2005. "Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations," NBER Working Papers 11719, National Bureau of Economic Research, Inc.
    7. Catherine L. Mann, 1990. "Prospects for sustained improvement in U.S. external balance: structural change versus policy change," International Finance Discussion Papers 373, Board of Governors of the Federal Reserve System (U.S.).
    8. Andrew M. Warner, 1992. "Import demand and supply with relatively few theoretical or empirical puzzles," International Finance Discussion Papers 433, Board of Governors of the Federal Reserve System (U.S.).

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