A Note on the Impact of Hedonics and Computers on Real GDP

HERE has been recent speculation about the impact of the use of hedonic price indexes in the measurement of real computer hardware and software expenditures in the U.S. national income and product accounts (NIPA's) and on the extent to which their use may be responsible both for the pickup in real gross domestic product (GDP) and productivity growth and for the continued low rate of measured inflation in the United States since 1995. Strong growth in computer sales and rapid declines in computer prices have made a sig- nificant contribution to economic growth; because measured growth depends on prices, if the declines in computer prices are overstated, the contribution of computers to real GDP will be overstated. This issue is central to the debate over the performance of the U.S. economy relative to that of other coun- tries and to the debate over whether the pickup in the U.S. economy in the latter half of the 1990's represents a fundamental change in the structure of the economy or whether it is due to changes in measurement. A review of the data shows that only a small