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

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  • Moch, Dietmar

Abstract

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.

Suggested Citation

  • Moch, Dietmar, 2001. "Price indices for information and communication technology industries: an application to the German PC market," ZEW Discussion Papers 01-20, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:5375
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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    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. Muellbauer, John, 1974. "Household Production Theory, Quality, and the "Hedonic Technique."," American Economic Review, American Economic Association, vol. 64(6), pages 977-994, December.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    5. 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..
    6. 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.
    7. 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.
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    Cited by:

    1. Karl Aiginger & Michael Landesmann, 2002. "Competitive Economic Performance: The European View," WIFO Working Papers 179, WIFO.
    2. Reis, Hugo J. & Santos Silva, J.M.C., 2006. "Hedonic prices indexes for new passenger cars in Portugal (1997-2001)," Economic Modelling, Elsevier, vol. 23(6), pages 890-908, December.
    3. Falk, Martin & Koebel, Bertrand M., 2004. "The impact of office machinery, and computer capital on the demand for heterogeneous labour," Labour Economics, Elsevier, vol. 11(1), pages 99-117, February.
    4. Georg Erber, 2006. "Benchmarking Efficiency of Telecommunication Industries in the US and Major European Countries: A Stochastic Possibility Frontiers Approach," Discussion Papers of DIW Berlin 621, DIW Berlin, German Institute for Economic Research.
    5. Gian Maria Tomat, 2005. "Prices, Product Differentiation And Quality Measurement: A Comparison Between Hedonic And Matched Model Methods," Temi di discussione (Economic working papers) 547, Bank of Italy, Economic Research and International Relations Area.
    6. Johanna Melka & Nanno Mulder & Laurence Nayman & Soledad Zignago, 2003. "Skills, Technology and Growth is ICT the Key to Success ? An Analysis of ICT Impact on French Growth," Working Papers 2003-04, CEPII research center.
    7. Melka, Johanna & Nayman, Laurence, 2005. "L’impact des nouvelles technologies de l’information sur la croissance française, 1980-2001," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 75-110, Mars-Juin.
    8. Antonopoulos, Christos & Sakellaris, Plutarchos, 2009. "The contribution of Information and Communication Technology investments to Greek economic growth: An analytical growth accounting framework," Information Economics and Policy, Elsevier, vol. 21(3), pages 171-191, August.
    9. Hannes Leo, 2001. "ICT Investment and Growth of Output and Productivity," WIFO Working Papers 162, WIFO.

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