RDP 9304: Exchange Rate Pass-Through: The Different Responses of Importers and Exporters Appendix 2: Computer Prices

The rapid pace of advance in computer technology poses problems for the measurement of computer prices. In short, when estimating prices, it is difficult to adjust for quality differences over time. However, the approach undertaken by statistical agencies abroad differs to that adopted by the ABS. As a consequence, computers have been excluded from both the import and manufactured export price series.

The ABS make use of an hedonic computer price index estimated by the United States Bureau of Economic Analysis and IBM (Meade 1991; McCarthy 1989). In simple terms, the services provided by computers are attributed to a number of basic components, such as central processors, storage units, printers, screens, etc. Implicit price series are estimated for each of these components. The base period price for current computer models can then be estimated by ‘reconstruction’ from these basic components.

However, the effect of this methodology is to equate the dramatic rise in power of computers in recent years with a fall in the unit price of such power. In consequence, the value of computer imports as a share of GDP has risen little since the mid 1980s, while the volume of computer imports has risen significantly. This creates a downward bias in any series of which computer prices are a part. Thus failing to exclude computers would produce a significant downward bias in Australian import and manufactured export prices compared with those of foreign economies.

Since the mid 1980s, computers have become both a major import and manufactured export component. In the seven years to December 1992, the endogenous import implicit price deflator has risen about 22 per cent; excluding computers the rise is about 30 per cent. Over the same period, manufactured export prices have risen 26 per cent; excluding computers the rise is about 34 per cent.