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Discussion paper

Benefits of the digital economy are evident in everyday life, but there are significant concerns that these benefits may not be appropriately reflected in official statistics. The measurement of the net benefits of new and disappearing products depends on what type of price index the statistical agency is using to deflate final demand aggregates. We examine this measurement problem when the agency uses any standard price index formula for its deflation of a value aggregate, such as GDP. We also apply the methodology to the problem of measuring the effects of product substitutions for disappearing items. Our exact expressions for biases inherent in different approaches provide a theoretical basis and framework for the emerging empirical literature on new goods and services, and for assessing the quality adjustment methodologies used in practice.

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ESCoE Discussion Paper 2018-16