Martin Eiglsperger European Central Bank – DG Statistics*

1. Seasonal adjustmentof chain-linked volume measuresin Quarterly National Accounts:Findings of a European Task Force Martin Eiglsperger European Central Bank – DG Statistics* The 2008 World Congress on National Accounts and Economic Performance Measures for Nations Washington D.C., 12-17 May 2008 * The views expressed in this presentation are those of the author and do not necessarily reflect the views of the European Central Bank.

2. 1 Background Annual chain-linking of Quarterly National Accounts (QNA) volume measures • By almost all statistical offices in the EU since 2005 • Implementation not fully harmonised across EU countries • 2007: European Task Force, chaired by Eurostat and the ECB; 19 EU countries participated→ impact of chain-linking techniques and relevance for seasonal adjustment • Detailed investigations by Robert Kirchner, Ingo Kuhnert, Sven Öhlén and Marcus Scheiblecker

3. 2 Chain-linking techniques (1) Three approaches to the annual chain-linking of Laspeyres volume indices in average prices of the previous year: • Annual overlap technique: links refer to the volumes of the previous year at average prices of the year • One-quarter overlap technique: links refer to the volumes of the fourth quarter in the previous year at average prices of the year • Over-the-year technique: links refer to the volumes of the same quarter in the previous year at average prices of the year

4. 3 Chain-linking techniques (2) Use of chain-linking techniques in EU countries: • Annual overlap technique:most EU countries • One-quarter overlap technique:Austria and the United Kingdom • Over-the-year technique:Used in theNetherlands and Sweden; change-over to the annual overlap technique planned / (partly) realised

5. 4 Effect on growth rates • Annual overlap technique:Year-on-year growth rates do not reflect pure volume changes, quarter-on-quarter rates do within the same calendar year • One-quarter overlap technique:Quarter-on-quarter growth rates reflect pure volume changes • Over-the-year technique:Year-on-year growth rates reflect pure volume changes

6. 5 Effect on time consistency • Annual overlap technique:Annually chain-linked QNA and chain-linked Annual National Accounts (ANA) are consistent over time • One-quarter overlap technique:Annually chain-linked QNA and chain-linked ANA are not consistent over time → benchmarking • Over-the-year technique:Annually chain-linked QNA and chain-linked ANA are not consistent over time, but deviations tend to be very small

7. 6 Aggregation and disaggregation Aggregation/disaggregation of unchained data • Annual overlap technique:Nominal values of the previous year as weights → existing data • One-quarter overlap technique:Volumes of the fourth quarter of the previous year at average prices of the year as weights → additionally required • Over-the-year technique:Volumes of the respective quarter of the previous year at average prices of the year as weights → additionally required

8. 7 Time series properties (1) Chain-linked volume measures: Trend and weak substitution effect in the source data Source: Kuhnert, I. (2007), internal presentation to the Task Force

9. 8 Time series properties (2) Chain-linked volume measures: Trend and strong substitution effect in the source data Source: Kuhnert, I. (2007), internal presentation to the Task Force

10. 9 Seasonally adjusted series • Time consistency: • not present in seasonally adjusted data • Task Force recommends benchmarking • Aggregation and disaggregation:One-quarter-overlap and over-the-year technique require additional weights data, annual overlap-technique does not (after benchmarking) • Additivity of s.a. data via “indirect” adjustment, i.e. aggregation of unchained s.a. data?→ consistency vs. quality of seasonal adjusted data might be an issue

11. 10 Order of procedures • Chain-linking, seasonal adjustment, benchmarking • Non-linearity of procedures: Order matters! • Benchmarking as the last step in order to fulfil user requirements for time consistency • Benchmarking can have a significant impact on the seasonal pattern (ARIMA-models, X-12 output) • Seasonal adjustment after chain-linking • Research by the Office for National Statistics (United Kingdom): “Drift” of one-quarter-overlap approach could be reduced by conducting s.a. first

12. 11 Summary (1) • Over-the-year technique can have a substantial impact on the seasonal pattern → not recommended by the Task Force • Annual overlap technique: Time-consistent data + no additional data requirements for aggregation! • One-quarter-overlap technique: smooth transition, but does not produce time-consistent series → benchmarking is recommended • Seasonally adjusted chain-linked series: benchmarking is recommended in order to produce time-consistent series

13. 12 Summary (2) • Consistency in aggregation of seasonally adjusted data: “Indirect” adjustment by aggregating unchained data → consistency vs. quality of seasonal adjusted data might be an issue • One-quarter-overlap approach: • Seasonal adjustment before chain-linking? • Benchmarking!