1. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Maintaining long time series through industry classification changes Richard McKenzie OECD OECD Short Term Economic Statistics Working Party

2. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Background STESWP 2006: OECD paper comparing current length of national series for IIP and linking / weighting methods used in index compilation. –Variation in practices across countries and concern over some index compilation methods used, in particular lack of linking between changes in base periods. Concerns for comparability of data across countries, and many versions of full historical series most likely exist Issue could become worse given upcoming implementation of new industry classifications

3. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Activities since June 2006 STESWP Formation of Eurostat task-force on implementation of NACE rev. 2 for STS Key issue being addressed of how to backcast series on new classification basis –Micro vs macro methods and associated assumptions and issues of quality Want to maintain current time series length as a key requirement

4. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Re-weighting and linking for past base years in new classification Concordance matrices provide a link between the old and new classification for economic variables –May only be for register variables (e.g. turnover, employment) if macro methods are used –May be for several variables if generated from recoded unit record files (e.g. from annual structural statistics) Concordance only truly valid for the period in which it is compiled –But often only one concordance matrix is possible, particularly if using register variables

5. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Re-weighting and linking for past base years in new classification Assuming the existence of only one concordance matrix, how far can one reasonably backcast a time series, say Index of Industrial Production? Key issue is that past base years are reweighted in the new classification and series linked (as should be the practice in the current classification) Weak points in the concordance should be investigated to improve quality

6. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Example: Concordance between old and new classification at 4 digit level based on dual coded register at 2008 Subset of new classification 4 digit codes (A, B, C, D) relates to subset of old classification (E, F, G, H) A = 0.6E + 0.4F B = 0.4E + 0.4F + 0.2G C = 0.8G D = 0.2E + H

7. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Old Classification2005 Wt (SBS turnover)2000 Weight E1000 F 800 G1000400 H10001200 New classification A = 0.6E + 0.4F1000920 B=0.4E + 0.4F + 0.2G1000800 C = 0.8G800320 D = 0.2G + H12001360

8. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Must reweight and link to form aggregates between base years Upper level aggregates AD, BC and ADBC From 2005 AD = 0.45A + 0.55D From 2000 – 2005 AD = 0.4A + 0.6D From 2005 BC = 0.4B + 0.6C From 2000 – 2005 BC = 0.71B + 0.29C From 2005 ADBC = 0.55AD + 0.45BC From 2000 – 2005 ADBC = 0.67AD + 0.33BC

9. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Backcasting aggregate indexes in new classification Cannot apply single weighting matrix to aggregate low level index series through past base years Must recast the weighting matrices in new classification for all past base years, compile partial period aggregate indices and link Is a mechanical procedure that should be relatively easy to do –Provided you have past base year weighting matrices …

10. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Other considerations Current price series can effectively be backcast with one concordance matrix as weights are not an issue –But where these are inputs to volume series, the previous issues apply to the price index used as the deflator (e.g. PPI for IIP and CPI for Retail trade)

11. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Quality assuring the concordance matrix back in time How to identify those parts of the classification where the concordance is likely to be very different back in time? A = 0.6E + 0.4F B = 0.4E + 0.4F + 0.2G C = 0.8G (Wireless telecommunications) D = 0.2E + H

12. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Quality assuring the concordance matrix back in time We need to identify such classes, and use whatever information possible to ‘guess’ what the concordance might have been in earlier base periods. –In the case of wireless telecommunication it is likely to have had a lower weight of all telecommunication in 2000 (e.g. C = 0.3 G) and perhaps a zero weight in 1995 In the case of NACE, such ‘guesses’ might best be made at the European level (at least for Western Europe)

13. OECD Short-Term Economic Statistics Working PartyJune 25-27 2007 Conclusion Importance of maintaining time series length in classification changes –If NSOs don’t do it our users will Should recast the weighting matrix in new classification for all base years, recompile aggregate series and link Need to identify parts of the classification where the concordance matrix is likely to be very different back in time