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How Fast are Semiconductor Prices Falling?

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  • David M. Byrne
  • Stephen D. Oliner
  • Daniel E. Sichel

Abstract

The Producer Price Index (PPI) for the United States suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast to the rapid declines reported from the mid-1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Over the course of the 2000s, the MPU prices posted by Intel, the dominant producer of MPUs, became much stickier over the chips' life cycle. As a result of this change, we argue that the matched-model methodology used in the PPI for MPUs likely started to be biased after the early 2000s and that hedonic indexes can provide a more accurate measure of price change since then. MPU prices fell rapidly through 2004 on every price measure we present, with the PPI declining at an even quicker pace than the hedonic indexes. However, from 2004 to 2009, our preferred hedonic index fell faster than the PPI, and from 2009 to 2013 the gap widened further, with our preferred index falling at an average annual rate of 42 percent, while the PPI declined at only a 6 percent rate. Given that MPUs currently represent about half of U.S. shipments of semiconductors, this difference has important implications for gauging the rate of innovation in the semiconductor sector.

Suggested Citation

  • David M. Byrne & Stephen D. Oliner & Daniel E. Sichel, 2017. "How Fast are Semiconductor Prices Falling?," Finance and Economics Discussion Series 2017-005, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2017-05
    DOI: 10.17016/FEDS.2017.005
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    References listed on IDEAS

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    Cited by:

    1. Raymond Mataloni & Kim Ruhl & Dylan Rassier & Fatih Guvenen, 2016. "Offshore Profit Shifting and Domestic Productivity Measurement," 2016 Meeting Papers 1382, Society for Economic Dynamics.
    2. David M. Byrne & John G. Fernald & Marshall B. Reinsdorf, 2016. "Does the United States Have a Productivity Slowdown or a Measurement Problem?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 109-182.
    3. Kenneth Flamm, 2018. "Measuring Moore’s Law: Evidence from Price, Cost, and Quality Indexes," NBER Working Papers 24553, National Bureau of Economic Research, Inc.
    4. Gunther Tichy, 2016. "Is the Working Society Running Out of Jobs?," WIFO Monatsberichte (monthly reports), WIFO, vol. 89(12), pages 853-871, December.
    5. Klenow, Peter J. & Li, Huiyu, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    6. Brainard, Lael, 2015. "Normalizing Monetary Policy When the Neutral Interest Rate Is Low: a speech at the Stanford Institute for Economic Policy Research, Stanford, California, December 1, 2015," Speech 882, Board of Governors of the Federal Reserve System (U.S.).
    7. Jennifer Bruner & Dylan G. Rassier & Kim J. Ruhl, 2018. "Multinational Profit Shifting and Measures throughout Economic Accounts," NBER Chapters,in: The Challenges of Globalization in the Measurement of National Accounts National Bureau of Economic Research, Inc.
    8. Autor, David & Dorn, David & Hanson, Gordon & Pisano, Gary & Shu, Pian, 2016. "Foreign Competition and Domestic Innovation: Evidence from U.S. Patents," CEPR Discussion Papers 11664, C.E.P.R. Discussion Papers.
    9. David Byrne & Carol Corrado & Daniel Sichel, 2017. "The Rise of Cloud Computing: Minding your Ps, Qs and Ks," NBER Chapters,in: Measuring and Accounting for Innovation in the 21st Century National Bureau of Economic Research, Inc.
    10. Chad Syverson, 2017. "Challenges to Mismeasurement Explanations for the US Productivity Slowdown," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 165-186, Spring.
    11. Susan N. Houseman & Brad J. Hershbein, 2018. "Understanding the Decline of U.S. Manufacturing Employment," Upjohn Working Papers and Journal Articles 18-287, W.E. Upjohn Institute for Employment Research.
    12. repec:aea:jecper:v:31:y:2017:i:2:p:187-210 is not listed on IDEAS
    13. David Argente & Munseob Lee & Sara Moreira, 2018. "How do Firms Grow? The Life Cycle of Products Matters," 2018 Meeting Papers 1174, Society for Economic Dynamics.
    14. Gilbert Cette & Jimmy Lopez & Giorgio Presidente & Vincenzo Spiezia, 2018. "Measuring “Indirect” Investments in ICT in OECD Countries," Working papers 686, Banque de France.
    15. Alexander Murray, 2017. "What Explains the Post-2004 U.S.Productivity Slowdown?," CSLS Research Reports 2017-05, Centre for the Study of Living Standards.
    16. Lawrence, Robert Z., 2018. "Recent US Manufacturing Employment: The Exception that Proves the Rule," Working Paper Series rwp18-002, Harvard University, John F. Kennedy School of Government.
    17. repec:nbr:nberch:13897 is not listed on IDEAS

    More about this item

    Keywords

    Economic development; technological change; and growth ; Industrial production ; Prices; business fluctuations; and cycles ; Productivity ; Measurment ; Hedonic price index ; Quality adjustment ; Microprocessor;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • N72 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: 1913-

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