How Fast are Semiconductor Prices Falling?

60 Pages Posted: 13 Apr 2015 Last revised: 24 Apr 2015

See all articles by David M. Byrne

David M. Byrne

Board of Governors of the Federal Reserve System

Stephen D. Oliner

American Enterprise Institute

Daniel E. Sichel

Wellesley College; NBER

Multiple version iconThere are 3 versions of this paper

Date Written: April 2015

Abstract

The Producer Price Index (PPI) for the United States suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast from the rapid declines reported from the mid-1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Roughly coincident with the shift to slower price declines in the PPI, Intel — the leading producer of MPUs — substantially changed its pricing behavior for these chips. As a result of this change, we argue that the matched-model methodology used in the PPI for MPUs likely started to be biased in the mid-2000s and that hedonic indexes can provide a more accurate measure of price change since then. Our preferred hedonic index of MPU prices tracks the PPI closely through 2004. However, from 2004 to 2008, our preferred index fell faster than the PPI, and from 2008 to 2013 the gap widened further, with our preferred index falling at an average annual rate of 43 percent, while the PPI declined at only an 8 percent rate. Given that MPUs currently represent about half of U.S. shipments of semiconductors, this difference has important implications for gauging the rate of innovation in the semiconductor sector.

Suggested Citation

Byrne, David M. and Oliner, Stephen D. and Sichel, Daniel E., How Fast are Semiconductor Prices Falling? (April 2015). NBER Working Paper No. w21074. Available at SSRN: https://ssrn.com/abstract=2593653

David M. Byrne (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Stephen D. Oliner

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
2024195205 (Phone)

HOME PAGE: http://www.aei.org/scholar/stephen-d-oliner/

Daniel E. Sichel

Wellesley College ( email )

106 Central St.
Wellesley, MA 02181
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
16
Abstract Views
277
PlumX Metrics