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An additive decomposition of revision to the UK ‘production’ estimate of GDP

An additive decomposition of revision to the UK ‘production’ estimate of GDP. Introduction. Significant user interest in understanding the causes of revisions to UK GDP Much comment (/criticism) in UK press about scale and extent of revisions to UK GDP

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An additive decomposition of revision to the UK ‘production’ estimate of GDP

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  1. An additive decomposition of revision to the UK ‘production’ estimate of GDP

  2. Introduction • Significant user interest in understanding the causes of revisions to UK GDP • Much comment (/criticism) in UK press about scale and extent of revisions to UK GDP • Historically, UK has published ‘revisions triangles’ for some time • these are the equivalent of the ‘real time databases’ relating to OECD’s MEI • The idea was to extend this to include more detail about the causes of each revision

  3. Issues impeding analysis of cause of revision • The reasons for revisions are generally thought to be too numerous to establish quantitatively where each revision comes from • e.g. late data for current periods will change history through the process of seasonal adjustment • Often many causes will underlie any individual revision, even at a quite detailed level • say, methods changes. benchmarking, changes to adjustments, late data, etc. • Untangling these effects can be very time consuming, and is often subjective • There are often so many small revisions, that it may be impractical to count all of them

  4. UK response • A means of systemising as far as possible the attribution of causes to individual revisions was sought • The GDP production team worked with a systems development team over a period of 6 months to set up systems to achieve this • This is still work in progress, and new ‘modernised’ national accounts systems are being built which incorporate and extend the basic approach now used

  5. GDP system • The UK GDP team now produce a regular monthly report of the causes of revisions • needed monthly, because, although GDP is a quarterly series, it is updated monthly • The current system operates at the 2-digit SIC level • All revision to growth in 2-digit indices are examined if the impact of the revisions on GDP growth is greater than 0.02 percentage points • For these series, the production system is ‘run’ with and without each change since the last production run to quantify the impact of each revision • For example, if a series has had late data, changes to ‘coherence adjustments, and re-seasonal adjustment, these are run sequentially, and the difference is then attributed to each cause.

  6. Example

  7. Example of results from the 2006 ‘Blue Book’ run

  8. GDP(O) annual revisions to divisions by cause Positive (58%) Negative (42%)

  9. 06 Q3 M3: absolute quarterly revisions to divisions by cause 2005 and 2006 Q1 – Q3 2006 Q1-Q3 2005

  10. Nomenclature used to assign causes The system identifies 15 different type of revision: • 1 Forecast data for proxy series replaced by actual data • 2 Forecast data for deflator series replaced by actual data • 3 Firmer actual data for proxy series received from supplier • 4 Firmer actual data for deflator series received from supplier • 5 Seasonal adjustment (from later data) • 6 Changes to 2-digit data quality adjustments (automatically assessed) • 7 Changes to 2-digit quarterly coherence adjustments (automatically assessed) • 8 Changes to MIDSS adjustments • 9 Other • 10 Changes to weights (automatically assessed) • 11 Seasonal adjustment review • 12 Methodological changes, i.e. Industry review • 13 Changes to annual coherence adjustments (automatically assessed) • 14 Errors - Source error • 15 Errors - Processing error • Some of these are ‘manually’ identified, but increasingly the process is becoming automated.

  11. Next steps • Current system still quite labour intensive • New systems being designed to systematise the processes • ‘Cut-off’ for deciding if revisions are ‘significant’ will be reduced to zero • Level of detail will be reduced from 2-digit to 4-digit components.

  12. Summary • Current system identifies reasons c.90% of total revision • Partially identified by system • Remainder manually detected during normal quality assurance procedure • Causes of revision are recorded using standard coding • Aim to have analytical output during the production round in time for inclusion in briefing • size of revision • reason for revision • which industry • Also analysis over time • e.g. between first estimate, and estimates at t+12 and t+24 etc

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