ShiftingTrends in Semiconductor Prices and the Pace of Technological Progress

Is There A Link? How Close?

By Ana Aizcorbe, Stephen D. Oliner, and Daniel E. Sichel

Ana Aizcorbe is the chief economist at the U.S. Bureau of Economic Analysis (BEA), where she coordinates cross-program research projects to develop supplemental measures to the national accounts and acts as a liaison to the academic community. Prior to joining the BEA in 2003, she held positions as a staff economist in the Division of Research and Statistics at the Federal Reserve Board, a visiting fellow at the Brookings Institution, and a research economist in the Division of Price and Index Number Research at the Bureau of Labor Statistics. She has written numerous articles on theoretical issues underlying price measurement, with empirical applications to the high-technology and service sectors. She received her B.A. in economics from Georgetown University and her Ph.D. in economics from Boston College.

Stephen D. Oliner is a senior adviser in the Division of Research and Statistics at the Federal Reserve Board. He came to the Fed in 1984 and was involved in macroeconomic analysis and forecasting until 1994. He then became chief of the Fed’s corporate finance group and was subsequently promoted to positions in which he supervised work on business and household finance and on U.S. financial markets and institutions. His research has covered a variety of topics, including several papers on the contribution of information technology to productivity growth. He earned a B.A. in economics from the University of Virginia and a Ph.D. in economics from the University of Wisconsin.

Dan Sichel is a deputy associate director in the Division of Research and Statistics at the Federal Reserve Board, where he helps manage the forecasts and analysis of the U.S. economy. His research has covered a range of topics including macroeconomics and productivity growth. He came to the Fed in 1988. In 1993 he joined the Brookings Institution as a Research Associate. From 1995-96, he was the deputy assistant secretary for macroeconomic policy at the Department of Treasury, after which he returned to the Fed. He earned a B.A. in economics and an M.P.P. from the University of Michigan in 1983 and a Ph.D. in economics from Princeton University in 1988.

This paper examines three questions motivated by previous research on semiconductors and productivity growth: Why did semiconductor prices fall so rapidly in the second half of the 1990s? Why has the rate of price decline slowed since 2001? And to what extent are these price swings associated with changes in the rate of advance in semiconductor technology? We show that the price swings are statistically significant and that they reflect changes in both price-cost markups and cost trends. Further analysis indicates that the shift to faster cost declines in the mid- 1990s likely corresponded to a speed-up in the pace of advance in semiconductor technology. However, the slower cost declines since 2001 appear not to have been mirrored by a deceleration in technology. Consequently, researchers should be cautious about associating price or cost movements for semiconductors with changes in the pace of underlying technology even over moderately long periods.

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