Eurostat – Unit D5 Key indicators for European policies

European Conference on Quality in Official Statistics, Q2010

Helsinki, 4-6 May 2010Helsinki, 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 name BreakdownStarting

date

Industrial Production (IPI) NACE divisions and MIGs 1970

Producers Prices (PPI) NACE divisions and MIGs 1970

Turnover index NACE divisions and MIGs 1974

Retail Trade Food, Non food 1970

Unemployment Male, Female, under and over 25 1970

Employment Employees, self-employees NACE A6 1970

Building permits Total 1970

Nights spent in Hotels Resident/Not resident 1990

Wages and salaries NACE A6 1971

National Accounts main aggregates NACE A6 1970

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