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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 from 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. Roughly coincident with the shift to slower price declines in the PPI, Intel — the leading producer of MPUs — substantially changed its pricing behavior for these chips. As a result of this change, we argue that the matched-model methodology used in the PPI for MPUs likely started to be biased in the mid-2000s and that hedonic indexes can provide a more accurate measure of price change since then. Our preferred hedonic index of MPU prices tracks the PPI closely through 2004. However, from 2004 to 2008, our preferred index fell faster than the PPI, and from 2008 to 2013 the gap widened further, with our preferred index falling at an average annual rate of 43 percent, while the PPI declined at only an 8 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, 2015. "How Fast are Semiconductor Prices Falling?," NBER Working Papers 21074, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21074
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    References listed on IDEAS

    as
    1. Song, Minjae, 2010. "The Quality Adjusted Price Index in the Pure Characteristics Demand Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(1), pages 190-199.
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    Blog mentions

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    1. Are we overestimating inflation (again?)
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-07-27 17:16:54
    2. Fed’s current strategy is ill adapted to the realities of the moment
      by kfriendly in Larry Summers' Blog on 2016-06-14 23:10:29
    3. Larry Summers: The Fed is making the same mistakes over and over again
      by Lawrence H. Summers in Wonkblog on 2016-06-15 00:25:02
    4. Summers on monetary policy
      by ssumner in The Money Illusion on 2016-06-15 21:25:52

    Citations

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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. Gunther Tichy, 2016. "Is the Working Society Running Out of Jobs?," WIFO Monatsberichte (monthly reports), WIFO, vol. 89(12), pages 853-871, December.
    3. 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.
    4. 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.
    5. Klenow, Peter J. & Li, Huiyu, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    6. 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.
    7. repec:aea:jecper:v:31:y:2017:i:2:p:187-210 is not listed on IDEAS
    8. 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.
    9. Gilbert Cette & Jimmy Lopez & Giorgio Presidente & Vincenzo Spiezia, 2018. "Measuring “Indirect” Investments in ICT in OECD Countries," Working papers 686, Banque de France.
    10. repec:nbr:nberch:13897 is not listed on IDEAS
    11. Kenneth Flamm, 2018. "Measuring Moore’s Law: Evidence from Price, Cost, and Quality Indexes," NBER Working Papers 24553, National Bureau of Economic Research, Inc.
    12. 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.).
    13. 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.
    14. 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.
    15. 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.
    16. Alexander Murray, 2017. "What Explains the Post-2004 U.S.Productivity Slowdown?," CSLS Research Reports 2017-05, Centre for the Study of Living Standards.
    17. 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.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • 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
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N72 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: 1913-
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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