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Price indices for information and communication technology industries: an application to the German PC market

  • Moch, Dietmar
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    Changing product quality, rapid technological progress, and short product life cycles make it difficult to compute indices that correctly reflect the true price movements of IT products. This paper assesses the differences between traditional and quality adjusted indices by providing results for PC hardware. Transaction price data for the period from 1985 to 1994 are used to construct price indices for personal computers in Germany. The use of hedonic methods allows to correct for quality changes. Quality-adjusted hardware prices decline by 34 percent on average per year according to our hedonic index. The estimation confirms the importance of quality adjustment since the decline of average prices at 7 percent p.a. is substantially lower, thus overestimating computer prices and inflation. When the hedonic index for German computer prices is compared to various indices calculated for the US market it seems that the decline of quality adjusted prices in Germany has been significantly higher than in the US. However if prices are converted to US$ the average decline is about 30 percent which is consistent with results for the US.

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    File URL: http://econstor.eu/bitstream/10419/24440/1/dp0120.pdf
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    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 01-20.

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    Date of creation: 2001
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    Handle: RePEc:zbw:zewdip:5375
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    1. 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..
    2. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, pages 63-100 National Bureau of Economic Research, Inc.
    3. Harhoff, Dietmar & Moch, Dietmar, 1996. "Price Indexes for PC Database Software and the Value of Code Compatibility," ZEW Discussion Papers 96-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, May.
    5. Nelson, Randy A & Tanguay, Tim L & Patterson, Christopher D, 1994. "A Quality-Adjusted Price Index for Personal Computers," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(1), pages 23-31, January.
    6. Muellbauer, John, 1974. "Household Production Theory, Quality, and the "Hedonic Technique."," American Economic Review, American Economic Association, vol. 64(6), pages 977-94, December.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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