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News, Noise, and Estimates of the "True" Unobserved State of the Economy

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Author Info
Dennis J. Fixler
Jeremy J. Nalewaik (Bureau of Economic Analysis)
Abstract

Which provides a better estimate of the ``true'' state of the U.S. economy, gross domestic product (GDP) or gross domestic income (GDI)? Past work has assumed the difference between each estimate and the ``true'' state of the economy is pure noise, taking greater variability to imply lower reliability. However each difference may be pure news instead; then greater variability implies higher information content and greater reliability. We analyze various vintages of estimates, developing models for combining GDP and GDI under the differing assumptions, and use revisions to the estimates to show the news assumption is probably more accurate.

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Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0017.

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Date of creation: Jan 2006
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Handle: RePEc:bea:wpaper:0017

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C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General
C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data

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  1. Smith, Richard J & Weale, Martin R & Satchell, Stephen E, 1998. "Measurement Error with Accounting Constraints: Point and Interval Estimation for Latent Data with an Application to U.K. Gross Domestic Product," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 109-34, January. [Downloadable!] (restricted)
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  2. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February. [Downloadable!] (restricted)
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  3. Weale, Martin, 1985. "Testing Linear Hypotheses on National Account Data," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 685-89, November. [Downloadable!] (restricted)
  4. N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Karen E. Dynan & Douglas Elmendorf, 2001. "Do provisional estimates of output miss economic turning points?," Finance and Economics Discussion Series 2001-52, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  7. Weale, Martin, 1992. "Estimation of Data Measured with Error and Subject to Linear Restrictions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 167-74, April-Jun. [Downloadable!] (restricted)
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