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Forecasting Substantial Data Revisions in the Presence of Model Uncertainty

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Author Info
Anthony Garratt
Gary Koop
Shaun P. Vahey (Reserve Bank of New Zealand)

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Abstract

A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this paper, we compute the probability of "substantial revisions" that are greater (in absolute value) than the controversial 2003 revision. The pre-dictive densities are derived from Bayesian model averaging over a wide set of forecasting models including linear, structural break and regime-switching models with and without heteroskedasticity. Ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures the improvement in the quality of preliminary UK macroeconomic measurements relative to the early 1990s.

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File URL: http://www.rbnz.govt.nz/research/discusspapers/dp06_02.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2006/02.

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Length: 31 p.
Date of creation: Feb 2006
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Handle: RePEc:nzb:nzbdps:2006/02

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Find related papers by JEL classification:
E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Koop, Gary & Potter, Simon M, 1999. "Dynamic Asymmetries in U.S. Unemployment," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 298-312, July.
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  2. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Forecasting output with the composite leading index: an ex ante analysis," Finance and Economics Discussion Series 90, Board of Governors of the Federal Reserve System (U.S.).
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  5. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February. [Downloadable!] (restricted)
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  6. Anthony Garratt & Shaun P Vahey, 2005. "UK Real-Time Macro Data Characteristics," Birkbeck Working Papers in Economics and Finance 0502, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
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  7. Patterson, Kerry D & Heravi, Saeed M, 1991. "Data Revisions and the Expenditure Components of GDP," Economic Journal, Royal Economic Society, vol. 101(407), pages 887-901, July. [Downloadable!] (restricted)
  8. Gary Koop & Simon M. Potter, 2001. "Are apparent findings of nonlinearity due to structural instability in economic time series?," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 38.
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  9. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November. [Downloadable!] (restricted)
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  10. Egginton, Donald & Andreas Pick & Shaun P. Vahey, 2002. "Keep It Real!: A Real-time UK Macro Data Set," Royal Economic Society Annual Conference 2002 69, Royal Economic Society. [Downloadable!]
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  11. Granger, C.W.J. & Pesaran, M. H., 1999. "Economic and Statistical Measures of Forecast Accuracy," Cambridge Working Papers in Economics 9910, Faculty of Economics, University of Cambridge. [Downloadable!]
  12. Koop, Gary & Potter, Simon M, 2003. "Bayesian Analysis of Endogenous Delay Threshold Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 93-103, January.
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  13. D R Osborn & M Sensier, 2002. "The Prediction of Business Cycle Phases: Financial Variables and International Linkages," Centre for Growth and Business Cycle Research Discussion Paper Series 15, Economics, The Univeristy of Manchester. [Downloadable!]
  14. 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.). [Downloadable!]
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  15. Swanson, Norman R. & van Dijk, Dick, 2006. "Are Statistical Reporting Agencies Getting It Right? Data Rationality and Business Cycle Asymmetry," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 24-42, January. [Downloadable!] (restricted)
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  16. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22. [Downloadable!]
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  17. Anthony Garratt & Gary Koop & Shaun P. Vahey, 2006. "Forecasting Substantial Data Revisions in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2006/02, Reserve Bank of New Zealand. [Downloadable!]
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  18. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November. [Downloadable!] (restricted)
  19. Dean Croushore, 2006. "An evaluation of inflation forecasts from surveys using real-time data," Working Papers 06-19, Federal Reserve Bank of Philadelphia. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anthony Garratt & Gary Koop & Shaun P. Vahey, 2006. "Forecasting Substantial Data Revisions in the Presence of Model Uncertainty," Birkbeck Working Papers in Economics and Finance 0617, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
  2. Cath Sleeman, 2006. "Analysis of revisions to quarterly GDP - a real-time database," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, pages 44p., March. [Downloadable!]
  3. Todd E. Clark & Michael W. McCracken, 2006. "Averaging forecasts from VARs with uncertain instabilities," Research Working Paper RWP 06-12, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  4. Anthony Garratt & Gary Koop & Emi Mise & Shaun Vahey, 2008. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2008/13, Reserve Bank of New Zealand. [Downloadable!]
    Other versions:
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