How Government Statistics Adjust for Potential Biases from Quality Change and New Goods in an Age of Digital Technologies: A View from the Trenches

Abstract

A key economic indicator is real output. To get this right, we need to measure accurately both the value of nominal GDP (done by Bureau of Economic Analaysis) and key price indexes (done mostly by Bureau of Labor Statisticcs). All of us have worked on these measurements while at the BLS and the BEA. In this article, we explore some of the thorny statistical and conceptual issues related to measuring a dynamic economy. An often-stated concern is that the national economic accounts miss some of the value of some goods and services arising from the growing digital economy. We agree that measurement problems related to quality changes and new goods have likely caused growth of real output and productivity to be understated. Nevertheless, these measurement issues are far from new, and, based on the magnitude and timing of recent changes, we conclude that it is unlikely that they can account for the pattern of slower growth in recent years. First we discuss how the Bureau of Labor Statistics currently adjusts price indexes to reduce the bias from quality changes and the introduction of new goods, along with some alternative methods that have been proposed. We then present estimates of the extent of remaining bias in real GDP growth that stem from potential biases in growth of consumption and investment. And we take a look at potential biases that could result from challenges in measuring nominal GDP, including those involving the digital economy. Finally, we review ongoing work at BLS and BEA to reduce potential biases and further improve measurement.

Producing or Playing? Investigating Internet Influence on Economic Growth

“…These results are in conflict with Salahuddin and Gow (2015), Clarke and Wallsten (2006), and MacDougald (2011) research results which claimed the existence of a positive influence of Internet users' growth on GDP per capita. H0 which presumed that an increase in Internet users positively affects economic growth in OECD countries is also rejected however, as Groshen at al. (2017) suggested, one of the reasons could be inadequate adjustment of statistic techniques to digital era challenges.…”

GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy

“…Wells and Restieaux (2014 , Table 1). Even when they do attempt to adjust for quality improvements, Groshen et al (2017) state that hedonic techniques are not suitable for products such as smartphones when the set of relevant characteristics frequently change. 64 Note that quality improvements, such as the addition of a camera feature to a smartphone, can also be thought of as additions of new goods as described in our framework.…”

“…Our new metric is labelled GDP-B, as it captures the benefits associated with new and 5 Among others, see, for example, Gordon (2016) and Cowen (2011) giving a pessimistic view and Sichel (2016), Mokyr, Vickers and Ziebarth (2015) and McAfee (2011, 2014) giving a more optimistic view. 6 Among others, see, for example, Feldstein (2017), Groshen et al (2017), Hulten and Nakamura (2017), Syverson (2017), Ahmad and Schreyer (2016), Byrne, Fernald and Reinsdorf (2016), Brynjolfsson and Saunders (2009), Brynjolfsson and Oh (2012), Greenstein and McDevitt (2011), Brynjolfsson, Eggers and Gannamaneni (2018) and Brynjolfsson, Collis and Eggers (2019). 7 See Hicks (1940), Diewert (1980), Hausman (1981Hausman ( , 1996, Feenstra (1994), Diewert, Fox and Schreyer (2018), and Diewert and Feenstra (2017).…”

Do‐it‐yourself Digital: the Production Boundary, the Productivity Puzzle and Economic Welfare

“…Furthermore, the prices charged by sharing platforms have not to date been included in the sampling for consumer price indices, and even if they were now to be included through the usual matching process or as a new good, the resulting index would omit a substantial part of the price reduction available (Groshen et al 2017). It is clear that prices on accommodation platforms, for instance, can be considerably lower than hotel room prices.…”