Benchmarking quarterly GDP to other official statistics.

Andrew Mortimer

Short-term Economic Indicators Branch

Purpose

• To demonstrate a method of constraining quarterly short-term indicators to other published statistics;

• To seek the views of SESCG on: – the need for benchmarking;– what source(s) to benchmark to;– timing

• Differences between estimates are inevitable• Actual (directly measured) values of sectoral GVA are

available from:– Regional Accounts– SABS (ABI)– Scottish Supply-use tables

• Quarterly GVA uses completely different data sources• Uses proxy measures as a short-term indicator of GVA –

in constant prices.• Is currently the only official measure of real growth in the

economy – and consequently is used for long-run analysis

Comparison of Quarterly GDP against other sources

Lagged by a number of years

Example: Hotels and catering

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

constant price

Example: Hotels and catering

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

constant price

current price

Example: Hotels and catering

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

constant price

current price

Implied deflator

Example: Hotels and catering

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Regional accounts (index)

current price

Example: Hotels and catering

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

diffs (annual)

Example: Hotels and catering

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

diffs (annual)

splined diffs

Example: Hotels and catering

0.8

20.8

40.8

60.8

80.8

100.8

120.8

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

current price

benchmarked current price

Example: Hotels and catering

0.8

20.8

40.8

60.8

80.8

100.8

120.8

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

current price

benchmarked current price

Implied deflator

Example: Hotels and catering

0.8

20.8

40.8

60.8

80.8

100.8

120.8

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

constant price

benchmarked constant price

Benefits

• Consistency between official statistics is desirable;

• Long-run growth measured using ‘actual’ GVA;

• Increased scrutiny of Regional Accounts / other official statistics;

• Focus on quarterly GDP shifts, appropriately, to its intended use – i.e. a short-term indicator of growth

Problems

• Choice of ‘gold standard’• Depending on the source constrained to, potentially large

revisions on an annual basis;• Scottish Government are involved in the quality

assurance of regional accounts and have been instrumental in highlighting problems in the statistics but QA is performed using aggregates, not source data – loss of control;

• Whether or not to anticipate and adjust for differences: what happens if systematic bias is indentified and then cancelled out by new observations (or vice-versa)?

• Some component series used in quarterly GDP are expressed in constant prices at the outset – with no established deflator that could be used to ‘inflate’ them

Timing

• Assuming that we pursue benchmarking…

• 3 choices (not mutually exclusive)– Constrain constant price estimates to double-

deflated constant price I-O tables (2-3 years);– Constrain to time-series of current price I-O

tables (1 year)– Constrain to 32 industry-level regional

accounts (immediate?).

Discussion

1. the need for benchmarking;

2. what source(s) to benchmark to;

3. Timing.