Deflators for purchases of computers in GNP: revised and extended estimates, 1983-88 - gross national product

Survey of Current Business, Nov, 1988 by Scott D. Smith, David W. Cartwright

Deflators for Purchases of Computers in GNP: Revised and Extended Estimates, 1983-88

In 1985, BEA introduced quality-adjusted deflators for purchases of computers in GNP for 1969-84.(1) Purchases in GNP consist of purchases by all domestic purchasers--business, persons, and government--and of exports; computers, or computing equipment, consist of processors and peripheral equipment, such as printers, disk drives, and displays. The deflators and their underlying price indexes have been revised for 1983-84 and extended to the current period in subsequent annual revisions of the national income and product accounts (NIPA's). This article describes the procedures now used to construct the price indexes and deflators for 1983-88. The deflators and corresponding fixed-weighted price indexes, neither of which are shown separately in the regularly published NIPA tables, also are presented.

Revised price indexes for computing

equipment

The deflators were constructed by BEA in 1985 using annual price indexes for computing equipment that were initially developed by the IBM Corporation.(2) IBM developed four types of price indexes: Matched-model indexes, regression indexes, composite indexes, and characteristics price indexes. The matched-model index is formed from prices for identical models that are sold in adjacent years; it does not include newly introduced or discontinued models. This method is similar to that used by the Bureau of Labor Statistics for constructing the Producer Price Indexes. The regression index is formed from the coefficients for year and technology class in an hedonic function, which relates prices paid for computers to quality characteristics, such as speed and memory size. The composite index is formed from current-year and base-year prices for each model sold in the current year. If the model was also sold in the base year, the reported price is used; if not, the base-year price is imputed using implicit base-year prices of characteristics from the hedonic function. The characteristics price index is formed from the implicit prices of characteristics from the hedonic function.(3)

The annual price indexes for 1983-87 as revised and extended are shown in table 1. They are constructed as follows. Composite indexes are used for processors (which for the revised indexes represent mainframe systems), direct access storage devices (DASD), printers, and displays. A regression index is used for tape drives for 1983, but it was discontinued for later years. For personal computers (PC's), a matched-model index was introduced in 1987. It is now constructed using price changes of IBM PC's, judgmentally adjusted by BEA to reflect price changes for other models, for 1983 and price changes of models sold by IBM and three additional manufacturers for 1984-87.(4)

Construction of revised deflators

Two deflators were introduced in 1985. The first was constructed by combining composite indexes for processors, DASD, printers, and displays and a regression index for tape drives, using the annual value of shipments by domestic manufacturers as weights. This deflator previously was referred to as the "deflator for computers." To more accurately reflect its coverage, in the future it will be referred to as the "deflator for computers and peripheral equipment." The second deflator covered business purchases of office, computing, and accounting machinery (OCAM). This deflator was constructed by combining the deflator for computers and peripheral equipment and Producer Price Indexes for selected types of office and accounting machinery, using the annual value of business purchases as weights.

The revisions to the annual price indexes and introduction of the PC price index led to changes in the weighting and composition of the deflator for computers and peripheral equipment. (The procedure for constructing the OCAM deflator was not affected.) The weight for PC's was reassigned from the processor index to the new PC price index, and the weight for tape drives was allocated proportionately among the other indexes after 1983.(5) (Price changes for tape drives--as well as for a number of other types of computing equipment not separately priced--are assumed to be represented by price changes of computing equipment covered by the deflator.) Thus, the revised deflator for computers and peripheral equipment is constructed by combining indexes for processors, PC's, DASD, printers, and displays. In addition to its use as a component of this deflator, the PC price index is used as the deflator for computers and peripheral equipment purchased by persons.

Table 2 shows the annual and quarterly deflators and fixed-weighted price indexes for computers and peripheral equipment and for the OCAM category of producers' durable equipment.(6) (Annual current- and constant-dollar expenditures and fixed-weighted price indexes for OCAM are published in the July issues of the SURVEY in NIPA tables 5.6, 5.7, and 7.13.) The annual fixed-weighted index for computers and peripheral equipment is calculated using weights for processors, PC's, DASD, printers, and displays based on 1982 shipments by domestic manufacturers. Quarterly deflators and fixed-weighted price indexes for computers and peripheral equipment are interpolations and extrapolations made using information on price changes and on the introduction of new equipment from trade publications.