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Title:Do hedonic price indexes change history? The case of electrification PDF Logo
Authors:Edquist, Harald
Issue Date:2005
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 586
Abstract:Rapid price decreases for ICT-products in the 1990s have been largely attributed to the introduction of hedonic price indexes. Would hedonic price indexing also have large effects on measured price and productivity during earlier technological breakthroughs? This paper investigates the impact of hedonic and matched model methods on historical data for electric motors in Sweden 1900-35. The results show that during the productivity boom of the 1920s, current prices for electric motors decreased by 13.2 and 12.2 percent per year depending on whether hedonic or matched model price indexes were used. This indicates high productivity growth in the industry producing electric motors in 1920-29. In contrast to Sweden, the US annual total factor productivity growth was only, according to current best estimates, 3.5 percent in Electric machinery compared to 5.3 percent in manufacturing in 1920-29. However, hedonic price indexes were not used to calculate US productivity. Finally, it is shown that the price decreases for electric motors in the 1920s were not on par with the price decreases for ICT-equipment in the 1990s, even if hedonic indexing is used in both cases.
Subjects:Hedonic price index
Electric motor
Productivity growth
Electrification
ICT revolution
Productivity growth
General Purpose Technologies
Innovation
JEL:L60
N60
O10
O14
O33
O40
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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