“Free” Internet Content: Web 1.0, Web 2.0, and the Sources of Economic Growth
The Internet has evolved from Web 1.0, with static web pages and limited interactivity, to Web 2.0, with dynamic content that relies on user engagement. This change increased production costs significantly, but the price charged for Internet content has generally remained the same: zero. Because no transaction records the ?purchase? of this content, its value is not reflected in measured growth and productivity. To capture the contribution of the ?free? Internet, we model the provision of ?free? content as a barter transaction between the content users and the content creators, and we value ...
IL Wesleyan University Associates Business Luncheon
Remarks for the IL Wesleyan University Associates Business Luncheon, May 14, 2010 Bloomington, IN
The Well-Being of Nations: Estimating Welfare from International Migration
The limitations of GDP as a measure of welfare are well known. We propose a new method of estimating the well-being of nations. Using gross bilateral international migration flows and a discrete choice model in which everyone in the world chooses a country in which to live, we estimate each country?s overall quality of life. Our estimates, by relying on revealed preference, complement previous estimates of economic well-being that consider only income or a small number of factors, or rely on structural assumptions about how these factors contribute to wellbeing.
Accounting for Growth in the Age of the Internet The Importance of Output-Saving Technical Change
We extend the conventional Solow growth accounting model to allow innovation to affect consumer welfare directly. Our model is based on Lancaster?s New Approach to Consumer Theory, in which there is a separate ?consumption technology? that transforms the produced goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is ?output-saving? technical change, in contrast to the Solow TFP ?resource-saving? technical change. One implication of our model is that living standards can rise at a ...
How to Achieve a V-Shaped Recovery amid the COVID-19 Pandemic
Contrasting the Great Depression and Great Recession recoveries helps show how GDP levels and growth rates can respond to different levels of policy responses.
Challenges in Nowcasting GDP Growth
Real gross domestic product (GDP) declined at an annualized rate of 4.8 percent in the first quarter, according to the first estimate from the U.S. Bureau of Economic Analysis (BEA), 3.8 percentage points more than the decline anticipated by the Atlanta Fed's final GDPNow model projection. Why was the error, which was easily the model's largest on record for final GDPNow forecasts, so big? Chart 1 looks at GDPNow's forecast errors since the model went live in mid-2014 and breaks them down into forecast errors for the various subcomponents' contributions to GDP growth.
Newer need not be better: evaluating the Penn World Tables and the World Development Indicators using nighttime lights
Nighttime lights data are a measure of economic activity whose measurement error is plausibly independent of the errors of most conventional indicators. Therefore, we can use nighttime lights as an independent benchmark to assess existing measures of economic activity (Pinkovskiy and Sala-i-Martin 2016). We employ this insight to find out which vintages of the Penn World Tables (PWT) and of the World Development Indicators (WDI) better estimate true income per capita. We find that revisions of the PWT do not necessarily dominate their predecessors in terms of explaining nighttime lights (and ...
The Fog of Numbers
In times of economic turbulence, revisions to GDP data can be sizable, which makes conducting economic policy in real time during a crisis more difficult. A simple model based on Okun’s law can help refine the advance data release of real GDP growth to provide an improved reading of economic activity in real time. Applying this to data from the Great Recession explains some of the massive GDP revisions at that time. This could provide a guide for possible revisions to GDP releases during the current coronavirus crisis.
The Fed’s Balance Sheet: The 37th Annual Monetary and Trade Conference
Fed?s Harker on Unwinding: ?Walk, Don?t Run?. A slow and steady approach to unwinding the Fed?s balance sheet is Philadelphia Fed President Patrick T. Harker?s preference. ?So in metaphorical terms, it is a dark and stormy night, to quote Peanuts, and we are walking in the direction of a wall,? he told a conference audience. "In that situation, most of us would give the advice of ?walk, don?t run.??
Aggregate Output Measurements: A Common Trend Approach
We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our ...