Browsing by Subject "Luova tuho"

Prices of different products are followed by statistical offices in order to produce price indices. The quality of products is constantly changing due to creative destruction. When a product leaves market, its price is computed with a method called imputation. Recent studies in United States and France have found that use of imputation may lead to upward bias in inflation. Since price indices are used as deflators when calculating economic growth, such a bias would mean that some of the growth is missed. The aim of this thesis is to study whether such a bias exists in Finland and how large it is. In addition, the channels of innovation induced growth are studied in order to determine from where the potentially missed growth originates. Creative destruction has been incorporated into economic growth models in the early 1990s. In its centre, are firms at the microlevel that innovate and create new products and improve existing ones. It has been shown that it is a key element when economic growth is concerned. New products and improving quality of old varieties is, however, widely recognised problem for price indices. Sources of bias for price statistics has been studied a lot and the changing quality of products is one of the greatest of them. This thesis contributes to this field by recognising a new possible source of bias and its magnitude in Finnish economy. The model used in this thesis is from 2017 paper by Aghion, Bergeaud, Boppart, Klenow and Li. The model is a new keynesian DSGE model with exogenous innovation and it provides an accounting framework which enables the quantification of missing growth. The missing growth is estimated using a so-called market share approach, where market shares of incumbent and entrant producers are exploited to quantify the share of growth that is missed yearly. Another method, namely indirect inference, relies on simulation of the economic growth model. It infers the arrival rates and step sizes of different types of innovations: incumbent of innovation, creative destruction and new product varieties. The simulation also enables for finding the contributions of those innovation types for the economic growth. The contributions provide information on from which type of innovation the majority of growth comes. Both methods use data provided by Statistics Finland. They use micro level data on private enterprises in Finland during the years 1989 – 2016. The market share approach requires establishment level data and information on the revenue and employment. The indirect inference method uses the same data aggregated on firm level for the years 1993 – 2013. In addition, the simulation requires total factor productivity growth rate for the given years. The results suggest that 0.489 percentage points of growth has been missed yearly in Finland during the years 1989 – 2016 when calculated with revenue data. The missed growth was estimated to be 0.532 percentage points per year with employment data. The results are comparable in magnitude with the results from the United States and France. The magnitude has remained stable over the years. The indirect inference method suggests that most of the growth comes from incumbent own innovation: 59.3% in 1993 – 2003 and 57.8% in 2003 – 2013. The rest is due to creative destruction and new product varieties either by incumbents or entrants. If 0.5 percentage points of growth is missed every year, it would have had significant effects on the economy. For example, many social benefits are tied to price indices and over estimation of them would mean that the benefits have not risen as much as they should have. Given the systematic nature of the bias, the central bank should consider increasing its inflation target. The statistical offices that produce the price statistics may be able to lower the bias if they manage to keep up to date with incumbent own innovations, since the majority of growth is originating from it. Also chain linked index helps lowering the bias by updating the sample and weights on a yearly basis. Additional research is needed in order to find solutions to overcome the bias caused by creative destruction and imputation of missing prices.