1. Estimation of Flash GDP at T+30 days for EU28 and EA18/EA19
Adam Brown, Cambridge Econometrics
Task Force Meeting, Rome, 22 June 2015

2. Progress since January 2015
Switched methodology from Stata to EViews
Estimates for 2014q4 and 2015q1
Back Estimates 2012 and 2013

3. Switch from Stata to EViews
Motivated by ease of transfer of application from CE to Eurostat from 2016 onwards
More “hands on” method allows for opportunity for more rigorous econometric analysis and data checking
Requires more detailed data preparation in Excel calculating accurately weighted averages
This method was discussed with Eurostat (Arto) in April and optimised

4. Estimates: 2014q4 and 2015q1

5. Objective Estimate real GDP growth rate for latest quarter at t+30
2014q1, q2 and q3 reported in January.
2014q4 and 2015q1
Geographical Coverage
EU28 remains the same
EA18 became EA19 on 1st January 2015
Real GDP Growth
Year-on-Year (YoY)
Quarter-on-Quarter (QoQ) (Seasonally Adjusted)

6. Data Flash estimates from participating countries
changing sample between 2014q1 and 2015q1
2014q4 and 2015q1 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
ESI: composite Economic Sentiment Indicator made up of five confidence indicators
manufacturing, construction, services, retail trade, consumers
Available on a month by month basis

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. Endogenous / Exogenous Groups
Period
Countries producing flash estimates
EU28 %
EU18 %
2014q4
Austria, Belgium, Bulgaria, Czech Republic, Germany, Spain, Finland, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania, UK
74%
2015q1
Austria, Belgium, Bulgaria, Czech Republic, Germany, Spain, Finland, Italy, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania, UK.
75%
Individual estimate for France generated using ARIMAX with country specific ESI
Austria, Latvia, Spain and Belgium estimates obtained from NSO

9. QoQ Growth rate Seasonally adjusted
GDP growth rates for 2014q4
YoY Growth rate
QoQ Growth rate Seasonally adjusted
CE Estimate
T+45 Estimate
Error
EU28
1.2
1.3
-0.09*
0.3
0.4
-0.08
EA18
0.8
0.9
-0.11*
-0.03
*0.7% (EU) and 0.9% (EA) error due to Netherlands low t+30 forecast of 0.0% (t+45 was 1.4%)

10. QoQ Growth rate Seasonally adjusted
GDP growth rates for 2015q1
YoY Growth rate
QoQ Growth rate Seasonally adjusted
CE Estimate
T+45 Estimate
Error
EU28
1.3
1.4
-0.11
0.4
-0.05
EA19
0.8
1.0
-0.17
0.3
-0.15

11. The t+45 errors for the estimates for 2015q1 are shown below.
GDP growth rates for 2015q1
The t+45 errors for the estimates for 2015q1 are shown below.
All are negative – this is because France’s flash estimate was not included and France had an unexpectedly good quarter
CE t+30 forecast
Official T+45 forecast
error
EU28 YoY
1.3
1.4
-0.11
EU28 QoQ
0.4
-0.05
EA19 YoY
0.8
1.0
-0.17
EA19 QoQ
0.3
-0.15
Mean error = % Abs mean error = 0.125%

12. CE t+30 forecast (with Fr)
GDP growth rates for 2015q1
For purposes of comparison, we recalculated our results as if we had had a t+30 flash estimate for France.
We see that the errors would have been both significantly smaller in absolute terms and less consistently negative.
CE t+30 forecast (with Fr)
Official T+45 forecast
error
EU28 YoY
1.4
-0.01
EU28 QoQ
0.4
+0.05
EA19 YoY
1.0
-0.04
EA19 QoQ
-0.02
Mean error = % Abs mean error = 0.03%

13. Back 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

14. Back Estimates – EU28 CE YoY T+65 YoY Error CE QoQ T+65 QoQ 2012q1
-0.1
-0.04
2012q2
-0.4
0.02
-0.2
2012q3
-0.6
0.0
-0.05
2012q4
-0.7
0.05
-0.3
2013q1
0.07
2013q2
-0.09
0.3
0.4
2013q3
0.2
2013q4
1.0
0.04
2014q1
1.4
0.00
2014q2
1.5
1.3
0.25
0.24
2014q3
1.2
-0.10
2014q4

15. Back Estimates – European Union

16. Back Estimates – EA17/18/19 CE YoY T+65 YoY Error CE QoQ T+65 QoQ
0.0
-0.4
0.46
0.3
-0.1
0.45
2012q2
-0.7
-0.8
0.13
-0.2
-0.3
0.12
2012q3
-0.9
0.01
2012q4
-1.0
0.11
2013q1
-1.2
0.20
2013q2
-0.6
-0.21
0.1
-0.22
2013q3
-0.01
0.7
0.2
-0.02
2013q4
0.4
2014q1
0.9
1.1
-0.18
2014q2
0.8
0.10
2014q3
-0.13
2014q4
-0.07
-0.06

17. Back Estimates – Euro Area

18. Back Estimates – Revision Analysis
European Union:
6+ve revisions, 6 -ve revisions.
Mean Revision: 0.00
Mean Absolute Revision: 0.07
eurozone:
6 +ve revisions, 6 –ve revisions.
Mean Revision: 0.03
Mean Absolute Revision: 0.14

19. Back 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 meets this criteria for the European Union but just fails to meet this criteria for the eurozone.
European Union:
6+ve revisions, 6 -ve revisions.
Mean Revision: 0.00
Mean Absolute Revision: 0.07
eurozone:
6 +ve revisions, 6 –ve revisions.
Mean Revision: 0.03
Mean Absolute Revision: 0.14

20. 2012q1 EA17 results CE YoY T+65 YoY Error CE QoQ T+65 QoQ 2012q1 0.02
-0.44
0.46
0.35
-0.10
0.45
The estimation for 2012q1 EA17 was considerably less accurate than subsequent forecasts.
The reason for this was the exogenous group estimation itself, which we calculated as 0.33%. The actual value turned out to be -0.10%.
This was mainly due to a downgrading of the Italian forecast from -1.0% to -2.3%.
This highlights the fact that when the number of countries in the exogenous group is small, the eventual Eurozone t+30 flash estimate is sensitive to errors in the country specific t+30 flash estimates.

21. Summary
Updated methodology from Stata to EViews in order to facilitate transfer to Eurostat
Calculated estimates for 2014q4 and 2015q1
Errors in the overall estimate were found to be largely a result of errors in exogenous group individual estimates
Performed back estimates for 2012 and 2013
Results suggest that specified quality criteria are realistic and achievable but care must be taken over criterion 2
Moving Forward: Three further estimates to be generated for 2015 quarters 2, 3 and 4

22. Any Questions?

24. 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