Real-time data revisions and the PCE measure of inflation

This paper tracks data revisions in the Personal Consumption Expenditure using the exclusions-from-core inflation persistence model. Keeping the number of observations the same, the regression parameters of earlier vintages of real-time data, beginning with vintage 1996:Q1, are tested for coincidence against the regression parameters of the last vintage of real-time data, used in this paper, which is vintage 2008:Q2 in a parametric and two nonparametric frameworks. The effects of data revisions are not detectable in the vast majority of cases in the parametric model, but the flexibility of the two nonparametric models is able to utilize the data revisions.     

An analysis of the informational content of New Zealand data releases: The importance of business opinion surveys

We examine the informational content of New Zealand data releases using a parametric dynamic factor model estimated with unbalanced real-time panels of quarterly data. The data are categorised into 21 different release blocks, allowing us to make 21 different factor model forecasts each quarter. We compare three of these factor model forecasts for real GDP growth, CPI inflation, non-tradable CPI inflation, and tradable CPI inflation with three different real-time forecasts made by the Reserve Bank of New Zealand each quarter. We find that, at some horizons, the factor model produces forecasts of similar accuracy to the Reserve Bank's forecasts. Analysing the marginal value of each of the data releases reveals the importance of the business opinion survey data—the Quarterly Survey of Business Opinion and the National Bank's Business Outlook survey—in determining how factor model predictions, and the uncertainty around those predictions, evolve through each quarter.     

Measuring the output gap in Switzerland with linear opinion pools

We use the recently proposed linear opinion pool methodology of Garratt et al. (2014) to construct real-time output gap estimates for Switzerland over the out-of-sample period from 2003:Q1 to 2015:Q4. The model space consists of a large number of bivariate VAR specifications for the output gap and inflation, with each VAR specification using a different estimate of the output gap, lag order, and structural break information. We find that the linear opinion pool performs rather poorly. Real-time estimates of the output gap are no more accurate than those from some simple benchmark models, no more robust to ex post revisions than the real-time estimates of the individual univariate output gaps, and do not produce more accurate forecasts of inflation. The key driver of ‘good’ forecast performance is structural break information. Once the same structural break information is conditioned upon in all prediction models, the gain from averaging over many different pools of models that utilize various output gap estimates or lag structures in the VAR specification is of negligible magnitude.     

THE 1993 REVISED SYSTEM OF NATIONAL ACCOUNTS: WHERE DO WE GO FROM HERE?

The 1993 System of National Accounts is a remarkable document, but the System also has some major imbalances and omissions. The present paper spells out four aspects of the SNA that require further development: (1) accounting for the costs of economic change; (2) delineation of information as an economic commodity; (3) overhaul of the methodology underlying input-output accounts; and, (4) consequences of the System's implicit use of compacted accounting. These developments can be incorporated in a Supplementary Document in the near future. We need not wait 25 years.     

Comments on ‘The state of macroeconomic forecasting’

The paper by Fildes and Stekler provides an overview of empirical results in macroeconomic forecasting. They do not address three key issues: (1) the importance of data revisions and the use of real-time data; (2) the statistical significance of differences between forecasts; and (3) the role of macroeconomic theory in formulating and evaluating macroeconomic forecasts.     

INDUSTRY‐LEVEL PRODUCTIVITY MEASUREMENT AND THE 2008 SYSTEM OF NATIONAL ACCOUNTS

The 2008 System of National Accounts recognizes capital services as the conceptually correct way to measure the input of capital into production. This allows setting up an integrated system of industry‐level and aggregate productivity accounts that are consistent with the 2008 SNA. The paper discusses the new aspects in the 2008 SNA and sets out such an integrated system, based on Jorgenson's aggregate production possibility frontier and gross output‐based industry productivity measures. Recent results for industry productivity measures for the United States complete the picture.     

THE TREATMENT OF PENSIONS AND INSURANCE IN NATIONAL ACCOUNTS*

In the course of the nearly two decades since the revised SNA was developed, the role of pensions and insurance in the developed western economies has been significantly altered. The United Nations System of National Accounts (SNA) is not fully consistent in its treatment of pension and insurance transactions. This paper examines whether, in view of the changed institutional context, a modification of the SNA treatment of this complex of flows would be desirable. It investigates the impact on household income and saving of adopting a somewhat more consistent transactor/transaction approach for all pension and insurance transactions. Four main topics are covered: (1) social security, (2) private pensions, (3) life insurance, and (4) casualty insurance. Each is considered in terms of the treatment of contributions, the treatment of benefits, and the handling of reserves and the income generated by them. The same sorts of problem arise in all four cases.     

THE VALUE OF IN‐STREAM WATER TEMPERATURE FORECASTS FOR FISHERIES MANAGEMENT

Water temperature is an important factor affecting aquatic life within the stream environment. Cold water species, such as salmonids, are particularly susceptible to elevated water temperatures. This paper examines the economic value of short‐term water temperature forecasts for salmonid management. Forecasts may have economic value if they allow the water resource manager to make better water allocation decisions. This study considers two applications: water releases for management of Chinook salmon in the Klamath River and leasing water from agriculture for management of steelhead trout in the John Day River. We incorporate biophysical models and water temperature distribution data into a Bayesian framework to simulate changes in fish populations and the corresponding benefit from recreational fishing and opportunity cost of water under different temperature forecast accuracies. Simulation results indicate that use of the forecasts results in increased fish production and that marginal costs decline and net benefits increase as forecast accuracy increases, suggesting that provision and use of such stream temperature forecasts would have value to society. (JEL Q22, Q25, Q28, Q50)     

Development of the SEEA 2003 and its implementation

The preparation of the System of Environmental and Economic Accounts 2003 marks an important milestone in the world of official statistics. Just as the development of the original guidelines for national accounting in the 1950s was the first step toward today's robust, internationally comparable economic statistics, the System of Environmental and Economic Accounts 2003 offers hope to bring order and comparability to environmental statistics. How the system came to be and why it is an important achievement are outlined. This is followed by an overview of its accounting structure. A discussion of the implementation of the SEEA 2003, both in ideal terms and as actually practiced in statistical offices, concludes.     

The (un)reliability of real-time output gap estimates with revised data

This paper investigates the differences between real-time and ex-post output gap estimates using a newly-constructed international real-time dataset over the period from 1973:Q1 to 2012:Q3. We extend the findings in Orphanides and van Norden (2002) for the United States that the use of ex-post information in calculating potential output, not the data revisions themselves, is the major cause of the difference between real-time and ex-post output gap estimates to nine additional OECD countries. The results are robust to the use of linear, quadratic, Hodrick–Prescott, Baxter–King, and Christiano–Fitzgerald detrending methods. By using quasi real-time methods, reliable real-time output gap estimates can be constructed with revised data.     

PRICES AND PRICE ANALYSIS IN THE FRAMEWORK OF THE NATIONAL ACCOUNTS

The paper discusses the role of prices in the framework of the new System of National Accounts (SNA) in terms of three major uses: (1) deflation, (2) price indicators, and (3) price analysis. Following a brief review of the price and quantity measures required by the new SNA with its emphasis on deflation of commodity flows and input-output accounts, in addition to the more conventional deflation of final demand categories, the paper discusses some of the conceptual, methodological and data problems involved in implementing the various uses of prices in the new SNA. Implementing the use of prices as deflators depends, in part, on the concept of output selected (national versus domestic; gross versus net), and which of six concepts of valuation, ranging from purchasers'value to true factor cost, is used. Some of the difficulties in deflating nonmarket flows (e.g., interplant transfers) and industry value added, based on the double deflation method, are discussed. In concept price deflators, which have shifting weights, cannot be used as price indicators, which should have fixed weights. In practice, this is often disregarded and the deflators are used as price indicators. The paper support the SNA recommendation for the development of price indexes with fixed weights to be used as price indicators, in addition to the implicit price deflators. Research in the United States indicates that differences in weights can result in different price measures for various subperiods, components of demand and sector output. Periodic revisions in weights to provide more current fixed weights for price and quantity indexes in each subperiod may minimize the problem but it introduces a new problem—lack of comparability with the constant price tables in the SNA which have fixed weights for the entire period. The new SNA provides a comprehensive and integrated framework for price analysis including the analysis of the structure of aggregate price changes, the industrial origin of final demand prices, and the impact of price change in one sector of the economy on the rest of the economy. Some major gaps which need to be overcome in order to implement the use of the new SNA for price analysis include the development of industry capital stock estimates, separate estimates of proprietors’income, reconciliation of value added and distribution share estimates, and the development of a wide variety of information to supplement the conventional input-output tables in the SNA. Implementing the various objectives of price measures within the framework of the accounts will require a number of improvements in existing price measures and expanding the scope of coverage. “List” prices should be superseded by “transactions” prices and better techniques and data need to be developed to provide for quality adjustment of prices. Coverage will need to be expanded to include services, freight rates, trade margins, government expenditures, and also fill in gaps for many manufactured products. Finally, where possible, use of unit values as price indexes or deflators, e.g., imports and exports, should be replaced by direct price measures.     

ON THE TREATMENT OF TAXES AND GOVERNMENT IN THE NATIONAL ACCOUNTS

Framed in the context of the ongoing revision of the 1993 System of National Accounts (SNA), this note proposes a new presentation of the National Accounts. While it does not require new information, nor difficult calculations, it is suggested to be conceptually clearer and practically simpler. The changes concern the treatment of taxes and government in the national accounts which imply that: (i) GDP, measured at basic price, is now exactly the sum of all value added, which is split in the compensation of employees and an enlarged operating surplus; (ii) the two functions of government are clearly distinguished in a modified sequence of accounts, that is, as producing non-market services up to the allocation of primary income account, and then as redistributing the national income; and (iii) with a conventional allocation of government services and GDP broken down between market GDP and non-market GDP, households remain the only final consumer and the so called question of consumption subsidies is resolved.     

Measuring the Rate of Technological Progress in Structures

How much technological progress has there been in structures? An attempt is made to measure this using panel data on the age and rents of buildings. The data are interpreted with the help of a vintage capital model where buildings are replaced with some chosen periodicity. The results indicate there has been significant technological advance in structures that accounts for an important part of economic growth.Journal of Economic LiteratureClassification Numbers: O3 and O4.     

Ex ante forecasts of business-cycle turning points

This paper presents a logit model that accurately forecasts business-cycle turning points with a lead of one-quarter. The sample period consists of an initialization subset (1959:Q3–1975:Q4), and a subset for out-of-sample forecast evaluation (1976:Q1–2005:Q4). In contrast with the record of disappointing results in the literature, the model correctly forecasts all turning points in the test subset without forecasting recessions that did not occur.      

Alternative Land-Price Indexes for Commercial Properties in Tokyo

The System of National Accounts (SNA) requires separate estimates for the land and structure components of a commercial property. Using transactions data for the sales of office buildings in Tokyo, a hedonic regression model (the “builder’s model”) was estimated and this model generated an overall property price index as well as subindexes for the land and structure components of the office buildings. The builder’s model was also estimated using appraisal data on office building real estate investment trusts (REITs) for Tokyo. These hedonic regression models also generated estimates for net depreciation rates, which can be compared. Finally, the Japanese government constructs annual official land prices for commercial properties based on appraised values. The paper compares these official land prices with the land prices generated by the hedonic regression models based on transactions data and on REIT data. The results reveal that commercial property indexes based on appraisal and assessment prices lag behind the indexes based on transaction prices.     

Accuracy and reliability of Spanish regional accounts (CRE-95)

Are estimates accurate? Are these data reliable? Can we evaluate whether successive revisions of the first estimate bring additional information, or whether they are due to the correction of earlier inaccuracies of bias, which does not add any useful information to economic analysts? The response is that a statistical technique, known in economic literature as news versus noise analysis can be used to answer these questions. These concepts were first introduced in ground breaking articles by Mankiw et?al. (1984) on revisions to money stock and Mankiw and Shapiro (1986) on revisions to Gross National Product in the United States. This method claims that the proximity of the first estimate to the definitive one can be a clue as to its quality. Many studies investigate the magnitude and nature of errors contained throughout the National Account System estimates; however, economic literature offers no option for judging accuracy and reliability in the main Regional Account aggregates, and therefore, this methodology is adopted to assess the accuracy and reliability of the revision process of the Gross Value Added (GVA) growth rates at basic prices, 1995 Base, within the Spanish Regional Accounts (CRE-95). For that purpose, this study examines five comprehensive revisions analyses for a range of eighteen Autonomous Communities (NUTS-2) during 1999. Main conclusions are: the quality of the estimates tends to increase over time; and the process can be explained better as reflecting new information than as correcting measurement errors so that the National Statistics Institute??s procedure can be deemed to be suitable.     

Forecasting nonlinear economic time series: A simple test to accompany the nearest neighbor approach

This paper is based on a recent nonparametric forecasting approach by Sugihara, Grenfell and May (1990) to improve the short term prediction of nonlinear chaotic processes. The idea underlying their forecasting algorithm is as follows: For a nonlinear low-dimensional process, a state space reconstruction of the observed time series exhibits spatial correlation, which can be exploited to improveshort term forecasts by means of locally linear approximations. Still, the important question of evaluating the forecast perfomance is very much an open one, if the researcher is confronted with data that are additionally disturbed by stochastic noise. To account for this problem, a simple nonparametric test to accompany the algorithm is suggested here. To demonstrate its practical use, the methodology is applied to observed price series from commodity markets. It can be shown that the short term predictability of the best fitting linear model can be improved upon significantly by this method.     

Approximating the DGP of China's quarterly GDP

We demonstrate that the Data Generating Process (DGP) of China's cumulated quarterly Gross Domestic Product (GDP, current prices), as it is reported by the National Bureau of Statistics of China (NBSC), can be (very closely) approximated by a simple rule. This rule says that the annual growth in any quarter is equal to the annual growth in its previous quarter plus an error term that is only nonzero in the first quarter of each year and with small variance. We show that this rule fits the data well for the period 1992Q1–2005Q4 for total GDP. It also gives accurate forecasts for 2006Q1–2009Q4.     

PUTTING THE CIVIL SOCIETY SECTOR ON THE ECONOMIC MAP OF THE WORLD

ABSTRACT ** : The past twenty‐five years have witnessed a spectacular expansion of philanthropy, volunteering, and civil society organizations throughout the world. Indeed, we seem to be in the midst of a ‘global associational revolution,’ a worldwide upsurge of organized private voluntary activity. Despite the promise that this development holds, however, the nonprofit or civil society sector remains the invisible subcontinent on the social landscape of most countries, poorly understood by policymakers and the public at large, often encumbered by legal limitations, and inadequately utilized as a mechanism for addressing public problems. One reason for this is the lack of basic information on its scope, structure, financing, and contributions in most parts of the world. This lack of information is due in part to the fact that significant components of the nonprofit sector fall within the non‐observed, or informal, economy, and in part to the way even the observed parts of this sector have historically been treated in the prevailing System of National Accounts (SNA). This paper provides an overview of a series of steps that have been taken over the past 20 years by researchers at the Johns Hopkins University in cooperation with colleagues around the world and, more recently, with officials in the United Nations Statistics Division and the International Labour Organization to remedy this situation, culminating in the issuance and initial implementation of a new United Nations Handbook on Nonprofit Institutions in the System of National Accounts and the forthcoming publication of a new International Labour Organization Manual on the Measurement of Volunteer Work. Taken together, these efforts point the way toward putting the civil society sector on the economic map of the world for the first time in a systematically comparative way.     

DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa

Inflation forecasts are a key ingredient for monetary policy-making – especially in an inflation targeting country such as South Africa. Generally, a typical Dynamic Stochastic General Equilibrium (DSGE) only includes a core set of variables. As such, other variables, for example alternative measures of inflation that might be of interest to policy-makers, do not feature in the model. Given this, we implement a closed-economy New Keynesian DSGE model-based procedure which includes variables that do not explicitly appear in the model. We estimate such a model using an in-sample covering 1971Q2 to 1999Q4 and generate recursive forecasts over 2000Q1 to 2011Q4. The hybrid DSGE performs extremely well in forecasting inflation variables (both core and nonmodelled) in comparison with forecasts reported by other models such as AR(1). In addition, based on ex-ante forecasts over the period 2012Q1–2013Q4, we find that the DSGE model performs better than the AR(1) counterpart in forecasting actual GDP deflator inflation.