Working Paper: NBER ID: w25645
Authors: Ana Aizcorbe; David M. Byrne; Daniel E. Sichel
Abstract: This paper addresses two measurement issues for mobile phones. First, we develop a new mobile phone price index using hedonic quality-adjusted prices for smartphones and a matched-model index for feature phones. Our index falls at an average annual rate of 17 percent during 2010-2018, close to the rate of decline in the price index used in the GDP Accounts. Given relatively flat average prices over this period, our index points to substantial quality improvement. Second, we propose a methodology to disentangle purchases of phones and wireless services when they are bundled together as part of a long-term service contract. Getting the allocation right is especially important for real PCE because the price deflators for phones and wireless services exhibit very different trends. Our adjusted estimates suggest that real PCE spending currently captured in the category Cellular Phone Services increased 4 percentage points faster than is reflected in published data.
Keywords: mobile phones; price index; personal consumption expenditures; hedonic regression; quality adjustment
JEL Codes: E01; E21; E31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hedonic quality-adjusted prices for smartphones (C43) | Mobile phone price index decline (L96) |
| Quality improvements in mobile phones (L96) | Hedonic quality-adjusted prices for smartphones (C43) |
| Hedonic regression methods (C29) | Quality adjustments on price trends (E30) |
| Misallocation of spending (D61) | Incorrect deflation of wireless services (L96) |
| Real spending on cellular phone services (L96) | Real PCE growth (O49) |