1. Estimation of Flash GDP at T+30 days for EU28 and EA18/EA19
Ben Gardiner, Adam Brown
Cambridge Econometrics
Task Force Meeting, Luxembourg, 07 October 2015

2. Contents Progress since previous meeting 2015q2 estimation
Review of all estimations so far
Looking forward

3. Progress since June 2015 Estimates for 2015q2 calculated
Ongoing Management of Portal
Econometric Advice to Taskforce Members

4. Quarterly Estimates for 2015
Estimate real GDP growth rate for latest quarter at t+30
2015q1 reported in June
2015q2 estimate calculated in August – will now be presented
2015q3 still to be calculated

5. Data Flash estimates from participating countries
changing sample between 2014q2 and 2015q2
2015q1 and 2015q2 participatory group actually remained constant
Historic GDP used for growth rate time series
Seasonally adjusted GDP at market prices, millions of euros, chain-linked volumes, reference year 2010, using ESA 2010 methodology
Previous year’s annual current price GDP levels used for weightings of composite growth rates
GDP: 1963Q1- most recent quarter preceding forecast
ESI: composite Economic Sentiment Indicator made up of five confidence indicators
manufacturing, construction, services, retail trade, consumers
ESI: 1985M01- most recent month

6. Real GDP (YoY) - Estimation Methods
Sample-to-Population Estimator
Assumes sample (participating Flash GDP countries) is good representation of the EU28 or EA18 (population)
Issues about reliability of sample size
ARIMAX
Endogenous: Real GDP YoY growth rate of population
Exogenous: ESI of EU28 and EA18 respectively
Ignores flash estimates but can be run as soon as ESI available
ARIMAX on Residual (Population – Sample) GDP
Combines the two approaches
Best of both worlds…

7. ARIMAX on Residual GDP Divide EU28 and EA18/19 into two groups:
Those who provide flash estimate: “Exogenous” group:
Calculate group growth rate using weighted averages of the individual countries
Those who do not provide estimate: “Endogenous” group
Estimate growth rate of Endogenous group as a whole using ARIMAX
Dependent variable: YoY growth rate of endogenous group
1st Independent variable: YoY growth rate of exogenous group
2nd Independent variable: weighted ESI of endogenous group
Check for time series stationarity and variable significance
Exact AR/MA specification selected using Schwartz Criterion, model with lowest (most negative) value selected

8. Exogenous Group Fifteen countries provided t+30 estimates:
Period
Countries producing flash estimates
EU28 %
EA19 %
2015q2
Austria, Belgium, Bulgaria, Czech Republic, Germany, Spain, France, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, UK.
88%
93%
Austria, Latvia, Spain and Belgium estimates obtained from NSO

9. The t+45 errors for the estimates for 2015q2 are shown below.
GDP growth rates for 2015q2
The t+45 errors for the estimates for 2015q2 are shown below.
CE t+30 forecast
Official T+45 forecast
Official T+60 forecast
T+45 error
T+60 error
EU28 YoY
1.79
1.6
1.9
0.19
-0.11
EU28 QoQ
0.44
0.4
0.05
0.04
EA19 YoY
1.41
1.2
1.5
0.21
-0.09
EA19 QoQ
0.34
0.3
-0.06

10. All Estimates
Data became available for flash estimates from 2012q1 to 2013q4
Calculations were therefore carried out for EU28 and EA17/18 areas over this time period
Combined with the 2014 and 2015 data already calculated, we now have 14 quarters of data

11. Flash Estimates – European Union

12. Flash Estimates – euro Area

13. Flash Estimates – Revision Analysis YoY
European Union:
7 +ve revisions, 7 -ve revisions.
Mean Revision: 0.06
Mean Absolute Revision: 0.12
eurozone:
7 +ve revisions, 7 –ve revisions.
Mean Revision: 0.05
Mean Absolute Revision: 0.13

14. Flash Estimates – Revision Analysis QoQ
European Union:
7+ve revisions, 7 -ve revisions.
Mean Revision: 0.01
Mean Absolute Revision: 0.08
eurozone:
7 +ve revisions, 7 –ve revisions.
Mean Revision: -0.01
Mean Absolute Revision: 0.12

15. Flash Estimates – Revision Analysis
Quality Criteria 1 and 2:
1. T+30 should be an unbiased estimate of GDP growth at T+45, with an average revision between and 0.05, and no more than 66.7% of revisions in the same direction.
The revision data for meets this criteria.
2. The average absolute revision for T+30 GDP growth should be within 0.10 ppt compared with T+45 GDP growth estimate, and 0.13 ppt compared with T+65 GDP growth estimate.
The revision data for just fails to meet this criteria.
European Union:
7+ve revisions, 7 -ve revisions.
Mean Revision: 0.01
Mean Absolute Revision: 0.08
eurozone:
7 +ve revisions, 7 –ve revisions.
Mean Revision: -0.01
Mean Absolute Revision: 0.12

16. Summary and moving forward
ARIMAX procedure has advantages:
quick and efficient to produce
limited requirement for additional data (no deadline issues)
But also has some disadvantages:
coping with unexpected changes (future like the past)
ensuring sufficient sample size (both no. of MS + time periods)
Overall performance of ARIMAX
Partly meets quality criteria
not really subjected to a period of significant turbulence
Moving forward…
One further estimate to be generated for 2015 quarters
Going live in 2016q1 (hopefully)

17. Any Questions?

19. AIC vs. Schwarz Critetion
AIC: -2*ln(likelihood) + 2*k
Shwarz: -2*ln(likelihood) + ln(N)*k
At relatively low N (<7), Shwarz is more tolerant of more parameters.
At high N AIC is more tolerant of more parameters.
Most of the time they agree