Methodological issues in annual chainlinking the output measure of GDP

1
Methodological issues in annual chain-linking
the output measure of GDP
2
The message...

• From Blue Book 2003, growth estimated using
  annual chain-linking
• Eurostat legislation and improvement in our
  growth estimates.
• details of the methodology in development.

3
Summary of presentation

• Current method
• What is annual chain-linking?
• Eurostat requirements
• UK decisions
• Future developments

4
Current method by industry contribution

• For each industry
• compile constant price series to show growth
• currently we reference to 1995100
• series might look like this

5
Current method of adding up

• To calculate a series showing growth for a group
  of related industries
• need to weight each industry series by how big a
  share it is of overall economy
• repeated until reach overall GDP
• weights are constructed using data from a fixed
  year or fixed base
• weights updated every 5 years, chain-linked
  sub-series of 6 to 9 years

6
Annual chain-linking

• Annual chain-linked figures use most recently
  available weights
• process produces pairs of years on each weight
  structure
• pairs of years are chain-linked together to
  produce a continuous series - process same as for
  fixed base

7
Differences

• Fixed base chain-linking
• out-of-date weights x
• judgement to chose link year x
• possible big revisions from new weights-
  rebasing x
• but components for several years add-up ?
• Annual chain-linking
• weights from previous year ?
• every year a link year ?
• updating year of weights not relevant ?
• fewer years add-up x

8
Improvements to relevance of weights (percentage
of all industries)
9
Effect of new 5 year weightsfor fixed base
chain-linking (on growth from 1994 to 1997)
10
Choice of link year
11
Modelling the effect on growth estimates A

• Post and telecommunications

12
Modelling the effect on growth estimates B

• Transport, storage and communications

13
and effects on even faster-falling prices
14
European requirements

• Principle 1 aggregate from elementary level
• Principle 2 use base-weighted indices (or Fisher
  indices)
• Principle 3 if base-weighted, use weights from
  the previous year.

15
Types of Indices
p price q volume p t q t weight
Base-weighted (Laspeyres)
Fisher
Base-weighted - need weights from base
year Fisher - need weights from now
16
Decision for monthly and quarterly data

• Quarterly data linked on quarter 4 and then
  bench-marked to match annual
• Monthly data linked on mean of quarter 4 months
  and then bench-marked to match annual

17
Decision for Seasonal Adjustment

• Chain-link
• Benchmark
• then Seasonally Adjust

• Chain-link
• then Seasonally Adjust
• Benchmark

?
18
Investigation of the elementary levelDifference
in growth figures (intermediate level start
minus detailed level start)
19
Below annual chain-linking level
20
Future developments

• Annual chain-linked data for GDPo in Economic
  Trends October 2001.
• Work on consistent input level.
• Prototype systems for Expenditure measure
  components.
• Long-term move to constant price balancing at a
  lower than overall level.

21
The message...

• From Blue Book 2003, growth estimates from
  annual chain-linking
• Eurostat legislation and improvement in our
  growth estimates.
• details of the methodology in development.

22
Improvements to relevance of weights (percentage
of all industries)