Download Analysis of revisions to quarterly gross domestic product (GDP) This

Analysis of revisions to quarterly gross domestic product (GDP)
This note updates the analysis contained in the article “Understanding the quality of
early estimates of Gross Domestic Product”, Brown et al, Economic and Labour
Market Review 2009,
(http://www.statistics.gov.uk/elmr/12_09/downloads/ELMR_Dec09_Brown.pdf) by
including revisions up to and including 2010 quarter four.
The data analysis here, as per the previous article, is based on the Real Time GDP
database, published on the ONS website and containing all published quarterly
estimates of GDP from 1961 quarter one up to the latest data published for the first
quarter of 2011. The charts below display various maturities of GDP data and how
they have evolved over time, as well as comparing revisions over different historical
periods.
Estimates of GDP and their revisions
The first estimate of quarterly GDP is published approximately 25 days after the end
of the quarter. This is then updated four weeks later when the second estimate of
GDP (formerly known as UK Output, Income and Expenditure) is published,
containing more detail on the output approach and some aggregate income and
expenditure data. Detailed information on income and expenditure components is
available a further four weeks later when the Quarterly National Accounts (QNA) are
published. There are potential revisions to the data in subsequent QNA releases as
well as in the annual national accounts Blue Book publication wherein annual data are
balanced at a much more detailed level and, potentially, major methodological
changes can be introduced, both of which can lead to revisions to quarterly data.
The largest methodological revision introduced in recent years was the improvement
in the measurement of the output of the financial services sector (FISIM) in the 2008
Blue Book, in line with international regulation. This had the effect of revising GDP
upwards in every period back to the 1960s.
So, revisions fall into two main categories, improved and updated data and major
methodological changes. Conflation of these two categories can lead to incorrect
conclusions regarding the quality of early estimates, hence it is worth looking at
various vintages of the data. In the main, early revisions are due to improved data,
later ones to improved methodology (see Brown et al for further discussion).
The first chart below shows GDP growth rates (based on each quarter compared with
the same quarter of the previous year) at various maturities, with the initial estimate
and estimates after three, six, 12, 24, 36, 48 and 60 months. The second just
compares the first estimate with that after 60 months.
GDP percentage growth, quarter on same quarter 1 year ago
14.00%
12.00%
10.00%
8.00%
T
T+3
T+6
T+12
T+24
T+36
T+48
T+60
6.00%
4.00%
2.00%
19
61
19 Q2
62
19 Q4
64
19 Q2
65
19 Q4
67
19 Q2
68
19 Q4
70
19 Q2
71
19 Q4
73
19 Q2
74
19 Q4
76
19 Q2
77
19 Q4
79
19 Q2
80
19 Q4
82
19 Q2
83
19 Q4
85
19 Q2
86
19 Q4
88
19 Q2
89
19 Q4
91
19 Q2
92
19 Q4
94
19 Q2
95
19 Q4
97
19 Q2
98
20 Q4
00
20 Q2
01
20 Q4
03
20 Q2
04
20 Q4
06
20 Q2
07
20 Q4
09
20 Q2
10
Q
4
0.00%
-2.00%
-4.00%
-6.00%
-8.00%
Percentage GDP growth, quarter on same quarter 1 year ago
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
T
T+60
19
61
19 Q2
62
19 Q4
64
19 Q2
65
19 Q4
67
19 Q2
68
19 Q4
70
19 Q2
71
19 Q4
73
19 Q2
74
19 Q4
76
19 Q2
77
19 Q4
79
19 Q2
80
19 Q4
82
19 Q2
83
19 Q4
85
19 Q2
86
19 Q4
88
19 Q2
89
19 Q4
91
19 Q2
92
19 Q4
94
19 Q2
95
19 Q4
97
19 Q2
98
20 Q4
00
20 Q2
01
20 Q4
03
20 Q2
04
20 Q4
06
20 Q2
07
20 Q4
09
20 Q2
10
Q
4
0.00%
-2.00%
-4.00%
-6.00%
-8.00%
Periods, maturities and vintages
• The period is the quarter to which any given estimates relates, that is there is a
series of different estimates for the period 2011 quarter one, starting with the
preliminary estimate published in April 2011
• The maturity can be thought of as the ‘age’ of a given estimate, for example
the preliminary estimates represent the estimates of age one month
• The vintage is a release of data at a given point in time. It is the temporary
state of the quarterly GDP time series composed of estimates which all have
different maturities
The charts illustrate that, in broad terms, the picture of growth in GDP over this
period is similar, irrespective of the maturity of data, although there are some
exceptions, for example in the late 1980s (see Brown et al). Indeed, based on
standard statistical tests, there is no evidence of bias in revisions of GDP growth
(calculated as the average revision) between:
• the preliminary estimate and the second annual balance;
• second estimate and the second annual balance or;
• quarterly national accounts and the second annual balance in the last five
years.
This result also holds in the 1980s and the 2000s as a whole, but there is evidence of
a small positive bias in GDP revisions in the 1990s. The reason for picking the
second annual balance to test against is that there are far fewer data updates after this
period.
The extent to which there is potential bias in the estimates is also a function of the
period over which revisions are calculated. This is illustrated in the chart below,
which shows the average revisions after 24 months calculated over different historical
periods:
Mean revisions between T and T+24 GDP estimates
0.001800
0.001600
0.001400
0.001200
0.001000
0.000800
0.000600
0.000400
0.000200
0.000000
1961Q2 to 1971Q4
1972Q1 to 1983Q4
1984Q1 to 1994Q4
1995Q1 to 2009Q1
-0.000200
This shows clearly the variability of the mean revision and that, in the period from
1995 quarter one to 2009 quarter one, the average revision between the first estimate
and the estimate published two years later has become markedly smaller.
Conclusion
In summary, the addition of the latest data to the analysis presented in the previous
article has not changed the general conclusions made there.
• The size of revisions in the recent period has been small
Furthermore, revisions after the second balanced year are generally due to
methodological changes. To the extent that these have led to revisions in the past,
there is no reason to suppose that any future revisions consequent on methodological
improvements will be of the same size or direction. That would depend on the nature
of the methodological improvements