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Real-Time Data at the Federal Reserve Bank of Philadelphia

Real-Time Data at the Federal Reserve Bank of Philadelphia. 2008 World Congress on National Accounts and Economic Performance Measures for Nations Washington, DC May 13 – 17, 2008 Tom Stark Federal Reserve Bank of Philadelphia. Real Time?.

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Real-Time Data at the Federal Reserve Bank of Philadelphia

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  1. Real-Time Data at the Federal Reserve Bank of Philadelphia 2008 World Congress on National Accounts and Economic Performance Measures for Nations Washington, DC May 13 – 17, 2008 Tom Stark Federal Reserve Bank of Philadelphia

  2. Real Time? • History: Observations on economic variables, measured prior to revision • Philadelphia Fed real-time data set • Forecasts: Projections based on real-time history • Philadelphia Fed forecast surveys

  3. Overview of Talk • Real-Time Data Sets at the Philadelphia FRB • Forecast Surveys • Realizations

  4. Overview of Talk • Real-Time Data Sets at the Philadelphia FRB • Forecast Surveys • Realizations • Uses of Real-Time Data at the Philadelphia FRB • Analyzing revisions • Evaluating forecast surveys • Testing the forecast implications of macroeconomic theories • Carrying out historical policy analysis

  5. Overview of Talk • Real-Time Data Sets at the Philadelphia FRB • Forecast Surveys • Realizations • Uses of Real-Time Data at the Philadelphia FRB • Analyzing revisions • Evaluating forecast surveys • Testing the forecast implications of macroeconomic theories • Carrying out historical policy analysis • Some Examples • Revisions to the U.S. personal saving rate • Forecast accuracy in the Survey of Professional Forecasters • Using the PIH to forecast income in real time • FOMC’s response to inflation expectations

  6. Real-Time Forecasts • Livingston Survey • Semiannual: June 1946 to present • Focus on business indicators - Most popular: CPI • Survey of Professional Forecasters • Quarterly: 1968 Q4 to present • Focus on U.S. national accounts – Product side • Greenbook Forecasts (Federal Reserve Board) • Prior to each FOMC meeting, 1966 - present • PDF files provide wide range of variables forecast

  7. Real-Time History: Philadelphia Fed Real-Time Data Set for Macroeconomists • Started in early 1990s as a research project with Dean Croushore • Provides snapshots of the data before revision • Has since become an ongoing “Bank project” at the Philadelphia FRB

  8. Real-Time History (cont.):Variables Included at the Phila. FRB • NIPA Income and Product Side • Monetary Aggregates • Business Indicators (IP, Capacity Utilization, Housing Starts) • Labor Market (Unemployment, Employment, Hours Worked) • Aggregate Price Indexes (GDP, CPI, PCE)

  9. Uses of Real-Time Data at the Philadelphia FRB • Analyzing Revisions • Evaluating Survey Forecasts • Testing Theories • Conducting Historical Policy Analysis

  10. (1) Revisions:U.S. Personal Saving Rate • Nakamura and Stark (February 2007): Philadelphia Fed Working Paper No. 07-8 • Key Findings on Personal Saving Rate: • Early estimates very unreliable • Large upward revisions in benchmarks

  11. U.S. Measured Personal Saving Rate (%)Large Upward Revisions1965 to 2005 2005 Q3 Vintage Advance Estimates

  12. U.S. Measured Personal Saving Rate:Distribution of RevisionsLatest Available Minus Advance Estimate1965 to 2005 Mean: 2.44 Std Dev: 1.88 MSE: 9.52

  13. U.S. Measured Personal Saving Rate:Distribution of RevisionsLast-before-Benchmark Minus Advance Estimate1965 to 2005 Mean: 0.08 Std Dev: 1.06 MSE: 1.11

  14. (2) Evaluation of Survey Forecasts:Survey of Professional Forecasters Two Key Issues • Revised or unrevised realizations • Does it matter? • If so, how much? • Information sets for estimating and forecasting benchmark models

  15. Revised or Unrevised Realizations?Nowcast RMSE Q/Q Real GDP Growth (Annual Rate, PPs.)Survey of Professional Forecasters, 1985-2005

  16. Revised or Unrevised Realizations?Four-Quarter-Ahead RMSE Q/Q Real GDP Growth (Annual Rate, PPs.)Survey of Professional Forecasters, 1985-2005

  17. Revised or Unrevised Realizations?Nowcast RMSEQ/Q GDP Inflation (Annual Rate, PPs.)Survey of Professional Forecasters, 1985-2005

  18. Revised or Unrevised Realizations?Four-Quarter-Ahead RMSEQ/Q GDP Inflation (Annual Rate, PPs.)Survey of Professional Forecasters, 1985-2005

  19. Benchmark Comparisons:Timing of Information Sets First Quarter Survey Forecasts for Q1,…,Q4,Q1 January February March NIPA Release for Q4 Questionnaire sent R-Time Data Set for NIPA Survey deadline Other January data: Retail Sales, CPI, PPI Housing Starts Industrial Production January data: Labor market Interest rates

  20. Benchmark Comparisons: AR ModelsRMSE (SPF / AR), 1985 – 2005Q/Q Real GDP Growth

  21. Does The Relative Value of “Nowcast Information” Decline as Data Are Revised?RMSE (SPF / AR), 1985 – 2005Q/Q Real GDP Growth

  22. (3) Testing Economic Theories:Permanent Income Hypothesis (PIH) • Nakamura and Stark (2007): Philadelphia Fed Working Paper 07-8 • Test Ireland’s Model of Forecasting with the PIH in Real Time • Key Findings: • Model works well when estimated on revised data… • …Not so good in real time

  23. The Model and Methodology • Estimate VAR in income growth and the saving rate • Impose restrictions implied by PIH • Run horse races between VAR-PIH and AR forecasts for income growth… • …Using fully revised data • …Using data in hand in real time

  24. Results: Forecasts for Income GrowthRMSE (PIH/AR) Ratio1971 to 1981

  25. Results: Forecasts for Income GrowthRMSE (PIH/AR) Ratio1971 to 1981

  26. (4) Historical Policy Analysis:How Has the Fed Responded to a Rise in Inflation Expectations? • Leduc, Sill, and Stark (2007): Journal of Monetary Economics • How has the FOMC responded to expected inflation before and after 1979? • Requires real-time measure of expectations for inflation: Livingston Survey • Findings: Strong response post-1979.

  27. The Model and Methodology • VAR in actual and expected CPI inflation, unemployment, short-term interest rate, and commodity prices • Real-Time Data: Expected inflation from Livingston Survey • Examine impulse responses to a one-time shock to expected inflation • Sample period cut at 1979

  28. We Examine the Effect That a One Percentage Point Shock to (Livingston) Inflation Expectations…. Effect of Shock on Expectations for Inflation Post-1979 Pre-1979

  29. …Has on Inflation and the Real Rate Pre-1979 Post-1979 Inflation Real Rate

  30. Concluding Remarks:Upcoming Changes • May 2, 2008: INDUSTRY dummy variable added to micro data set for SPF forecasters • Allows analysts to cut the data according to panelists employed in financial and nonfinancial sectors • Summer 2008: New data-download pages for SPF and real-time data sets • Easier downloads for users • Summer 2008: Forecast error statistics for (mostly) all variables in SPF • Ongoing: New variables and more frequent vintages in real-time data set [joint with Dean Croushore] • Monthly vintages for NIPA variables • Price indexes for PCE and core PCE • Detailed components from BEA’s personal income report

  31. Tom Stark Tom.Stark@phil.frb.org

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