Working Paper

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

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;

https://doi.org/10.17016/FEDS.2019.012

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2019-02-26

Number: 2019-012

Pages: 47 pages