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Do provisional estimates of output miss economic turning points?

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  • Karen E. Dynan
  • Douglas Elmendorf

Abstract

Initial estimates of aggregate output and its components are based on very incomplete source data, so they may not fully capture shifts in economic conditions. In particular, if those estimates are based partly on trends in preceding quarters, provisional estimates may overstate activity when actual output is decelerating and understate it when actual output is accelerating. We examine this issue using the Real Time Data Set for Macroeconomists, which contains contemporaneous estimates of GNP or GDP and its components beginning in the late 1960s, as well as financial-market information and other data. We find that provisional estimates tend to partially miss accelerations and decelerations. We also consider whether better use of contemporaneous data could improve the quality of provisional estimates. We find that provisional estimates do not represent optimal forecasts of the current estimates, but that the improvement in forecast quality from including additional data appears to be quite small.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2001-52.

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Date of creation: 2001
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Handle: RePEc:fip:fedgfe:2001-52

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Keywords: Forecasting ; Macroeconomics;

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References

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  1. Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics 9907006, EconWPA.
  2. Brodsky, Noel & Newbold, Paul, 1994. "Late forecasts and early revisions of United States GNP," International Journal of Forecasting, Elsevier, vol. 10(3), pages 455-460, November.
  3. David E. Runkle, 1998. "Revisionist history: how data revisions distort economic policy research," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-12.
  4. Jon Faust & John H. Rogers & Jonathan H. Wright, 2000. "News and noise in G-7 GDP announcements," International Finance Discussion Papers 690, Board of Governors of the Federal Reserve System (U.S.).
  5. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  6. Mork, Knut Anton, 1987. "Ain't Behavin': Forecast Errors and Measurement Errors in Early GNP Estimates," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 165-75, April.
  7. Boldin, Michael D, 1994. "Dating Turning Points in the Business Cycle," The Journal of Business, University of Chicago Press, vol. 67(1), pages 97-131, January.
  8. Charles L. Evans, 1998. "Real-time Taylor rules and the federal funds futures market," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 44-55.
  9. 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.
  10. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  11. Karl Whelan, 2000. "A guide to the use of chain aggregated NIPA data," Finance and Economics Discussion Series 2000-35, Board of Governors of the Federal Reserve System (U.S.).
  12. Dean Croushore & Tom Stark, 2000. "A real-time data set for macroeconomists: does data vintage matter for forecasting?," Working Papers 00-6, Federal Reserve Bank of Philadelphia.
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Citations

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Cited by:
  1. Evans, Martin D.D., 2005. "Where Are We Now? Real-Time Estimates of the Macro Economy," CEPR Discussion Papers 5270, C.E.P.R. Discussion Papers.
  2. Sinclair, Tara M. & Stekler, H.O., 2013. "Examining the quality of early GDP component estimates," International Journal of Forecasting, Elsevier, vol. 29(4), pages 736-750.
  3. Sinclair, Tara M. & Joutz, Fred & Stekler, H.O., 2010. "Can the Fed predict the state of the economy?," Economics Letters, Elsevier, vol. 108(1), pages 28-32, July.
  4. Kitchen, John & Monaco, Ralph, 2003. "Real-Time Forecasting in Practice: The U.S. Treasury Staff's Real-Time GDP Forecast System," MPRA Paper 21068, University Library of Munich, Germany, revised Oct 2003.
  5. Jeremy J. Nalewaik, 2008. "Lack of signal error (LoSE) and implications for OLS regression: measurement error for macro data," Finance and Economics Discussion Series 2008-15, Board of Governors of the Federal Reserve System (U.S.).
  6. Tara M. Sinclair & H.O. Stekler, 2011. "Differences in Early GDP Component Estimates Between Recession and Expansion," Working Papers 2011-05, The George Washington University, Institute for International Economic Policy.
  7. Nalewaik, Jeremy J., 2011. "Incorporating vintage differences and forecasts into Markov switching models," International Journal of Forecasting, Elsevier, vol. 27(2), pages 281-307, April.
  8. Dynan, Karen E. & Elmendorf, Douglas W. & Sichel, Daniel E., 2006. "Can financial innovation help to explain the reduced volatility of economic activity?," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 123-150, January.
  9. Dennis J. Fixler & Jeremy Nalewaik, 2010. "News, Noise, and Estimates of the "True" Unobserved State of the Economy," BEA Working Papers 0068, Bureau of Economic Analysis.
  10. Hara, Naoko & Ichiue, Hibiki, 2011. "Real-time analysis on Japan's labor productivity," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 107-130, June.
  11. Dean Croushore, 2008. "Frontiers of real-time data analysis," Working Papers 08-4, Federal Reserve Bank of Philadelphia.
  12. Döpke, Jörg, 2004. "Real-time data and business cycle analysis in Germany," Discussion Paper Series 1: Economic Studies 2004,11, Deutsche Bundesbank, Research Centre.
  13. Dennis Fixler & Bruce Grimm, 2006. "GDP Estimates: Rationality Tests and Turning Point Performance," Journal of Productivity Analysis, Springer, vol. 25(3), pages 213-229, 06.
  14. Monica Martin & Cristiano Papile, 2004. "The Bank of Canada's Business Outlook Survey: An Assessment," Working Papers 04-15, Bank of Canada.

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