Estimating Hedonic Price Indexes for Personal Computers in Russia

Economists have noted for decades that Consumer Price Index (CPI) in the developed countries is overstating inflation by 0,5-2,0% per year. A significant part of this bias is found to be caused by the effects of new goods and quality change. Information and communication technology (ICT) products are mostly subject to these effects. An increasing weight of these products in the Russian CPI may lead to a substantial upward bias in the Russian CPI. Nowadays hedonic price indexes are believed to be one of the most efficient ways to eliminate the bias. They can be used in two ways: to estimate the bias in CPI and to elaborate an alternative to official price indexes for ICT products. In this study we estimate hedonic price and quality indexes for Personal Computers, the most widespread ICT product, in Russia. Using 21 months data (03.2004-11.2005) we estimated a 25% fall in PC prices for 20 months (about 16% on 12 months scale). We have also estimated that elementary price index for PC may be biased upward by 17-27% per year due to the usage of traditional matched models. Hence, the Russian CPI can be overstated by 0,19-0,31% per year. Hedonic quality indexes indicate a significant quality growth of PC (GAGR 19% per year) which is the best explanation for the rapidly falling prices.