Download A Report on the Federal Reserve`s Efforts to Better Assess Economic

A Report on the Federal Reserve Board’s
Efforts to Better Assess Economic Activity
Society for Economic Measurement Annual Conference, 2015
Norman Morin and John Stevens
Federal Reserve Board of Governors
July 2015
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Disclaimer: Any views expressed here are those of the authors and do not necessarily reflect the views of the Board of
Governors of the Federal Reserve System or the Federal Reserve System.
Macroeconomists face a difficult signal extraction problem
• Most economic data releases are characterized by:
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Publication lags (often lengthy)
Repeated revisions (often substantial)
Well-known measurement challenges (e.g., services output, input prices, etc.)
Statistical noise
• From these noisy and incomplete data, macroeconomists are asked to discern the
underlying cyclical state of economic activity through a combination of models and
judgment.
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Vintages of Real GDP and Real GDI for 2010:Q1
(percent change, annual rate)
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Real GDP
Real GDI
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5
4
3
2
1
0
Apr 2010 May 2010 Jun 2010
Source: Bureau of Economic Analysis.
Jul 2010
Aug 2010
Jul 2011
Jul 2012
Jul 2013
Jul 2014
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Conceptually similar data
sometimes tell a different story
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Source: Bureau of Economic Analysis and Board of Governors of the Federal Reserve System.
Vision for addressing the signal-extraction problem
Develop innovative sources of information and deploy a range of statistical and
econometric techniques in order to achieve the best possible inference about
the current state of the macroeconomy in real time, along dimensions that are
especially relevant for monetary policy makers.
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What might “success” look like?
• The equivalent of today’s information set is available weeks earlier.
• This information set has been augmented by new measures of economic activity.
• Possibly derived from “big data,” administrative data, or other sources.
• Possibly higher frequency or more disaggregated than their current equivalent measures.
• This expanded information set is being used in a range of statistical filtering models,
more-structural econometric models, etc., to provide an improved and more timely
signal about the cyclical position of the economy.
• This work is being supported by an active research agenda and broad engagement
with academics and other professionals in relevant disciplines.
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What have we done so far?
• We have re-oriented our focus by:
• Expanding the economic measurement mandate of the Industrial Output section to
include exploring options for “administrative data” and “big data”
• Standing up a new section called “Current Macroeconomic Conditions” that will conduct
inference about the cyclical state of the macroeconomy using a range of data and tools
• Pursuing the development of new skills
• We have been developing relationships with potential data providers and engaging in
a fact-finding effort to learn about potential data sources (public and private) for
• Developing new economic measures
• Improving existing economic measures (including our own)
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Improving the Fed’s measures of Industrial Production (IP)
• The Fed created IP as a “real-time” measure of economic activity
• The Federal Reserve Bulletin (1918) noted “…an increasing need for the development of
some method of measuring in an authoritative way changes in business conditions…”
• By 1922, the Fed was producing 100+ series on the physical volume of trade
• For nearly 100 years, the Fed has continued to improve upon the data sources and
methods used to estimate IP
• Current efforts include
• Exploring the feasibility of using scanner data as a high-frequency production indicator for
selected industries
• Using daily data on temperatures and snowfall at 1000+ weather stations through the
country from the National Oceanographic and Atmospheric Administration to create
timely adjustments for weather-related production disruptions when our data on actual
production (or indicators of production) are incomplete
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Source: National Oceanographic and Atmospheric Administration and U.S. Census Bureau; calculations by staff at the Board of Governors of the
Federal Reserve System.
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Source: National Oceanographic and Atmospheric Administration and U.S. Census Bureau; calculations by staff at the Board of Governors of the
Federal Reserve System.
Looking for measures of consumer spending
• Exploring possible sources of information on consumer transactions
• Large retailers probably have real-time dashboards
• Hoping to acquire/develop a timely measure of consumer spending
• Motor vehicle sales data are timely—released after month-end—but can be volatile
• Internet search data are even more timely and may presage significant movements
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Source: Wards Automotive and Google.
Note: Chart prepared by Alessandro Barbarino.
Developing an indicator of new business formations
• Data on actual business formations from administrative records are generally
comprehensive, but they become available with a long lag
• With colleagues at the Census Bureau and in academia, we are exploring whether
another comprehensive, administrative data source—applications for Employer
Identification Numbers (EINs)—can help predict new business formation
• EINs are required for submitting tax information to the IRS
• EIN application data are timely
• Project requires:
• A significant data cleaning effort
• Modeling the relationship between EIN applications and actual business formations
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Potential challenges associated with such data efforts
• Privacy concerns associated with PII/BII
• Lack of incentives for many organizations to share data
• Potentially fickle data providers
• Statistical concerns
• Short length of time series: Impinges on business-cycle analysis
• Lack of representativeness: Sample-selection issues and lack of benchmark information
• Lack of temporal consistency: Collected information could change unexpectedly
• Can be expensive: Data purchases; associated IT costs; data cleaning; development
and testing of new measures; skills development
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