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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. 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.
  2. Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics 9907006, EconWPA.
  3. 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.
  4. 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.
  5. 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.
  6. 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.).
  7. 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.
  8. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  9. 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.).
  10. 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.).
  11. 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.
  12. 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.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Dennis J. Fixler & Jeremy J. Nalewaik, 2007. "News, noise, and estimates of the "true" unobserved state of the economy," Finance and Economics Discussion Series 2007-34, Board of Governors of the Federal Reserve System (U.S.).
  4. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2005. "Can financial innovation help to explain the reduced volatility of economic activity?," Finance and Economics Discussion Series 2005-54, Board of Governors of the Federal Reserve System (U.S.).
  5. Tara M. Sinclair & Fred Joutz & Herman O. Stekler, 2009. "Can the Fed Predict the State of the Economy?," Working Papers 2009-001, The George Washington University, Department of Economics, Research Program on Forecasting, revised Mar 2010.
  6. 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.).
  7. Döpke, Jörg, 2004. "Real-time data and business cycle analysis in Germany," Discussion Paper Series 1: Economic Studies 2004,11, Deutsche Bundesbank, Research Centre.
  8. 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.
  9. Evans, Martin D, 2005. "Where Are We Now? Real-Time Estimates of the Macroeconomy," MPRA Paper 831, University Library of Munich, Germany.
  10. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
  11. 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.
  12. 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.
  13. Tara M. Sinclair & H.O. Stekler, 2011. "Examining the Quality of Early GDP Component Estimates," Working Papers 2011-001, The George Washington University, Department of Economics, Research Program on Forecasting, revised Dec 2011.
  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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