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Computers and the trade deficit: the case of the falling prices

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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.

Suggested Citation

  • Ellen E. Meade, 1990. "Computers and the trade deficit: the case of the falling prices," International Finance Discussion Papers 378, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:378
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    References listed on IDEAS

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    1. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
    2. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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    Cited by:

    1. John Coleman, Wilbur II & Gilles, Christian & Labadie, Pamela, 1992. "The liquidity premium in average interest rates," Journal of Monetary Economics, Elsevier, pages 449-465.
    2. 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.
    3. 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.).
    4. Menzie Chinn, 2006. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," Open Economies Review, Springer, vol. 17(1), pages 115-143, January.
    5. Menzie D. Chinn, 2005. "Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(3), pages 460-485, October.
    6. Menzie D. Chinn, 2004. "Incomes, Exchange Rates and the US Trade Deficit, Once Again," International Finance, Wiley Blackwell, vol. 7(3), pages 451-469, December.
    7. 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.

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    Keywords

    Computers ; International trade;

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