ECONOMETRIC ESTIMATES OF PRICE INDEXES FOR PERSONAL COMPUTERS IN THE 1990S

In this paper we construct a number of quality-adjusted price indexes for personal computers in the US marketplace over the 1989-92 time period. We generalize earlier work by incorporating simultaneously the time, age, and vintage effects of computer models and then develop a corresponding specification test procedure. When data on new and surviving models are used in the estimation of hedonic price equations, a variety of quality-adjusted price indexes decline at about 30% per year, with a particularly large price drop occurring in 1992. We conclude that taking quality changes into account has an enormous impact on the time pattern of price indexes for PC's.