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October 1990, Vol. 113, No. 10
An experimental price index for the computer industry
James Sinclair and Brian Catron
Recently, the Bureau of Labor Statistics' monthly periodical, Producer Price Indexes, began publication of experimental price indexes for the computer industry. Publication of this material was an outgrowth of a pilot study initiated in 1987. The goal of the study was to test a number of different quality adjustment methodologies for developing constant-quality price indexes for the computer industry in an operational environment. More specifically, the project sought to measure the cost improvements embodied in computers and computer peripheral equipment and to develop a methodology for excluding the cost of the improvements from reported prices.
Price indexes should measure only pure price changes and not include the cost of any embodied technological changes. The normal Producer Price Index (PPI) quality adjustment methodology, by itself, was not flexible enough to measure quality improvements in an industry with steadily declining prices. Thus, a new approach was required.
Once the results of the pilot study were evaluated and incorporated into an operational methodology, calculation of comprehensive computer product indexes could begin. This permitted the publication of the experimental index, with its base period beginning in October 1988, in the August issue of Producer Price Indexes. This article presents an overview of the experimental computer price index.1 After discussing how quality adjustment is measured in the PPI program, the article focuses on the level of detail selected for publication purposes, sampling and weighting issues, and the quality adjustment methodology that was ultimately selected. Finally, the current status of the experimental index is examined, together with dome economic and statistical issues surrounding it.
This excerpt is from an article published in the October 1990 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 For a more detailed explanation of the pilot indexes, see Brian C. Catron, "Price Measurement for Computer Hardware: A Demonstration of Quality Adjustment Techniques" (Bureau of Labor Statistics, Division of Industrial Prices and Price Indexes, Apr. 14, 1989, unpublished internal document).
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