Eurostat – Unit D5 Key indicators for European policies European Conference on Quality in Official Statistics, Q2010 Helsinki, 4-6 May 2010

Eurostat – Unit D5 Key indicators for European policies European Conference on Quality in Official Statistics, Q2010 Back-calculation of European aggregates: some general considerations By Gian Luigi Mazzi, Filippo Moauro, Rosa Ruggeri Cannata Helsinki, 4-6 May 2010

Eurostat – Unit D5 Key indicators for European policies Outline Background Limits of the exercise Outline of a Eurostat strategy –Main requirements of a Eurostat strategy –Characteristics of the developed methodology –Ongoing activities An empirical example: the euro area IPI Future actions Conclusions

Eurostat – Unit D5 Key indicators for European policies Background (1) Long time-series are requested by main users Several reconstructed long series available Relevant for macroeconomic studies, BC analysis Impossible to maintain official long time-series: missing past values, revisions of definitions/classifications, ecc.. Replication back into the past  for a short period only A simpler way  use of statistical and econometric methods PEEIs  one of Eurostat's priorities

Eurostat – Unit D5 Key indicators for European policies Background (2) Rationalisation among practices is in line with the principle of the Commission "Communication on the production method of EU statistics: a vision for the next decade", aiming to define generic methods applicable across domains Availability of long time-series for euro area and EU will represent for Eurostat a great contribution to the use of PEEIs. It will increase the quality of flash-estimates and SA data In the Eurostat quality framework, improvement of the coverage dimension The definition of a plan will meet users' requirements … raising Eurostat's visibility, credibility and reputation.

Eurostat – Unit D5 Key indicators for European policies Scope of the exercise The exercise does not imply a micro-level back-calculation Mainly targeted to main aggregates with a limited breakdown. Its aim is not to change the past pattern of the series … but to keep it unchanged (turning points, cyclical shape) Preserve the historical characteristics of the series We don’t want to "rewrite" the history This exercise  homogenisation of existing, partially overlapping segments of time series eliminating breaks and inconsistencies. This is in line with users' expectations involved in BC analysis and econometric modelling

Eurostat – Unit D5 Key indicators for European policies Main requirements of the Eurostat strategy Use of maximum possible observational content The method  statistically sound-documented-easily understandable and publicly available Specific metadata  attached to the results Replicable methodology … applicable both to non SA and SA data Method  easy to maintain Reconstructed long series  distinguished from official versions Avoid questionable results (e.g. calculation of EU-27 back to '70s) Target: back to 1970; euro area 12 and EU 15 aggregates

Several alternative methods explored Linear dynamic models could conduct towards explosive results Non-invertibility of most macro-economic series Simple regression models is a guarantee of quality in the results complemented by benchmarking preservation of growth rates Eurostat – Unit D5 Key indicators for European policies Statistical approach

Eurostat – Unit D5 Key indicators for European policies Characteristics of the developed methodology Simple and robust method based on linear regression models Hypothesis  overlap between the target series and a proxy A similar approach is also adopted for annual national accounts. Overlapping sub-periods  all the information at national level Temporal and sectoral, linear and non linear aggregation constraints are taken into account SA data  consistency with the approach currently used in Eurostat

Eurostat – Unit D5 Key indicators for European policies Outline of the Eurostat strategy: list of experimental back-calculated series Indicator nameBreakdown Starting date Industrial Production (IPI)NACE divisions and MIGs1970 Producers Prices (PPI)NACE divisions and MIGs1970 Turnover indexNACE divisions and MIGs1974 Retail TradeFood, Non food1970 UnemploymentMale, Female, under and over Employment Employees, self-employees NACE A Building permitsTotal1970 Nights spent in HotelsResident/Not resident1990 Wages and salariesNACE A61971 National Accounts main aggregatesNACE A61970

Eurostat – Unit D5 Key indicators for European policies Validation of results Complex exercise involving several iterative steps Our effort  development of a comprehensive validation strategy The quality checks  similarity of the pattern between the official series and back-calculated ones absence of unjustified breaks or outliers sufficient degree of smoothness ability to reproduce past turning points reliability of results compared to alternative methods attentive graphical analysis.

Eurostat – Unit D5 Key indicators for European policies Ongoing activities So far, statistical validation  IPI, PPI, Turnover index, Unemployment, Employment, Building permits, Nights spent in Hotels and National Accounts results in line with desired quality standards Back-calculation of NACE Rev 2 data already implemented for short term business statistics

Eurostat – Unit D5 Key indicators for European policies An example of back-calculation: the euro area Industrial Production Index (IPI) Target series:(denoted new series) - total industry (excluding construction) - country series and euro area 12 aggregate (EA12) - Monthly WDA index 2005=100 from January ‘96 - under the new NACE Rev.2 Related indicators:(denoted old series) - historical indexes by country - extracted from Eurostat, OECD and NSIs - available from January ’70 (Ireland from ’76)

Eurostat – Unit D5 Key indicators for European policies Old and new versions of IPI for largest countries

Eurostat – Unit D5 Key indicators for European policies The back-calculation procedure of IPI Fit a linear regression to the new IPI for each country Specification: log-differences Set of regressors: old IPI + detrministic variables Sample: overlapping period General to specific approach Computation of the euro area EA12 aggregate

Eurostat – Unit D5 Key indicators for European policies The resulting EA12 series: comparison with main related indicators

Eurostat – Unit D5 Key indicators for European policies Comparison EA12/EA11-old for the series of Januaries, Aprils, Julies and Octobers: annual growth rates in %

Eurostat – Unit D5 Key indicators for European policies Conclusions and future actions Sound methodology Based on static linear regression modelling approach Easy to maintain and to replicate Easily applicable by Member States too A common back-calculation approach will increase: 1) the comparability of back-calculated series; 2) the reliability of European aggregates