Are we counting the benefits of cloud computing to GDP?

A new NBER working paper by David Byrne, Carol Corrado and Daniel E. Sichel titled, "The Rise of Cloud Computing:  Minding Your P's, Q's and K's."

Abstract:

Cloud computing--computing done on an off-site network of resources accessed through the Internet--is revolutionizing how computing services are used.  However, because cloud is so new and it largely is an intermediate input to other industries, it is difficult to track in the U.S. statistical system.  Moreover, there is a paucity of systematic information on the prices of cloud services.  To begin filling this gap, this paper does three things.  First, we define the different segments of cloud computing and document its explosive expansion.  Second, we develop new hedonic prices indexes for cloud services based on quarterly data for compute, database, and storage services offered by Amazon Web Services (AWS) from 2009 to 2016.  These indexes fall rapidly over the sample period, with quickening (and double digit) rates of decline for all three products starting at the beginning of 2014. Finally, we highlight the puzzle of why investment in IT equipment in the NIPAs has been so weak while capital expenditures have exploded for IT equipment associated with cloud infrastructure.  We suggest that cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP.

Gated copy available here. 

Long Run Growth of Financial Technology

From the abstract:

In most sectors, technological progress boosts efficiency. But financial technology and the associated data-intensive trading strategies have been blamed for market inefficiency. A key cause for concern is that better technology might induce traders to extract other's information from order flow data mining, rather than produce information themselves.

Defenders of these new trading strategies argue that they provide liquidity by identifying uninformed orders and taking the other side of their trades. We adopt the lens of long-run growth to understand how improvements in financial technology shape information choices, trading strategies and market efficiency, as measured by price informativeness and market liquidity. We find that unbiased technological change can explain a market-wide shift in data collection and trading strategies. But our findings also cast doubt on common wisdom. First, although extracting information from order flow does crowd out production of  fundamental information, this does not compromise price informativeness. Second, although taking the opposite side of uninformed trades is  typically called "providing liquidity," the rise of such trading strategies does not necessarily improve liquidity in the market as a whole. 

Long Run Growth of Financial Technology available at NBER.