Getting Smart About Phones: New Price Indexes and the Allocation of Spending between Devices and Services Plans in Personal Consumption Expenditures

48 Pages Posted: 1 Mar 2019 Last revised: 25 May 2019

See all articles by David M. Byrne

David M. Byrne

Board of Governors of the Federal Reserve System

Daniel E. Sichel

Wellesley College; NBER

Ana M. Aizcorbe

U.S. Bureau of Economic Analysis (BEA)

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-02-26

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: Cell phone, Hedonic indexes, Mobile phone, Personal consumption expenditures, Price indexes, Quality adjustment, Smartphone

JEL Classification: E31, E21, O33

Suggested Citation

Byrne, David M. and Sichel, Daniel E. and Aizcorbe, Ana M., Getting Smart About Phones: New Price Indexes and the Allocation of Spending between Devices and Services Plans in Personal Consumption Expenditures (2019-02-26). FEDS Working Paper No. 2019-012. Available at SSRN: https://ssrn.com/abstract=3344571 or http://dx.doi.org/10.17016/FEDS.2019.012

David M. Byrne (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

Daniel E. Sichel

Wellesley College ( email )

106 Central St.
Wellesley, MA 02181
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ana M. Aizcorbe

U.S. Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

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