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FEDERAL RESERVE BANK
OF PHILADELPHIA
Real-Time Data at the Federal Reserve Real-Time Data at the Federal Reserve Bank of PhiladelphiaBank of Philadelphia
2008 World Congress on National 2008 World Congress on National Accounts and Economic Performance Accounts and Economic Performance
Measures for NationsMeasures for Nations
Washington, DCWashington, DCMay 13 – 17, 2008May 13 – 17, 2008
Tom StarkTom StarkFederal Reserve Bank of PhiladelphiaFederal Reserve Bank of Philadelphia
Real Time?Real Time?
• History:History: Observations on economic Observations on economic variables, measured prior to variables, measured prior to revisionrevision– Philadelphia Fed real-time data set Philadelphia Fed real-time data set
• Forecasts:Forecasts: Projections based on Projections based on real-time historyreal-time history– Philadelphia Fed forecast surveys Philadelphia Fed forecast surveys
Overview of TalkOverview of Talk• Real-Time Data Sets at the Philadelphia FRBReal-Time Data Sets at the Philadelphia FRB
– Forecast SurveysForecast Surveys– RealizationsRealizations
Overview of TalkOverview of Talk• Real-Time Data Sets at the Philadelphia FRBReal-Time Data Sets at the Philadelphia FRB
– Forecast SurveysForecast Surveys– RealizationsRealizations
• Uses of Real-Time Data at the Philadelphia FRBUses of Real-Time Data at the Philadelphia FRB– Analyzing revisionsAnalyzing revisions– Evaluating forecast surveysEvaluating forecast surveys– Testing the forecast implications of macroeconomic Testing the forecast implications of macroeconomic
theories theories – Carrying out historical policy analysisCarrying out historical policy analysis
Overview of TalkOverview of Talk• Real-Time Data Sets at the Philadelphia FRBReal-Time Data Sets at the Philadelphia FRB
– Forecast SurveysForecast Surveys– RealizationsRealizations
• Uses of Real-Time Data at the Philadelphia FRBUses of Real-Time Data at the Philadelphia FRB– Analyzing revisionsAnalyzing revisions– Evaluating forecast surveysEvaluating forecast surveys– Testing the forecast implications of macroeconomic Testing the forecast implications of macroeconomic
theories theories – Carrying out historical policy analysisCarrying out historical policy analysis
• Some ExamplesSome Examples– Revisions to the U.S. personal saving rateRevisions to the U.S. personal saving rate– Forecast accuracy in the Survey of Professional Forecast accuracy in the Survey of Professional
ForecastersForecasters– Using the PIH to forecast income in real timeUsing the PIH to forecast income in real time– FOMC’s response to inflation expectationsFOMC’s response to inflation expectations
Real-Time ForecastsReal-Time Forecasts
• Livingston SurveyLivingston Survey– Semiannual: June 1946 to presentSemiannual: June 1946 to present– Focus on business indicators - Most popular: CPI Focus on business indicators - Most popular: CPI
• Survey of Professional ForecastersSurvey of Professional Forecasters– Quarterly: 1968 Q4 to presentQuarterly: 1968 Q4 to present– Focus on U.S. national accounts – Product side Focus on U.S. national accounts – Product side
• Greenbook Forecasts (Federal Reserve Greenbook Forecasts (Federal Reserve Board)Board)– Prior to each FOMC meeting, 1966 - presentPrior to each FOMC meeting, 1966 - present– PDF files provide wide range of variables forecast PDF files provide wide range of variables forecast
Real-Time History: Real-Time History: Philadelphia Fed Real-Time Data Philadelphia Fed Real-Time Data
Set for Macroeconomists Set for Macroeconomists
• Started in early 1990s as a research Started in early 1990s as a research project with Dean Croushoreproject with Dean Croushore
• Provides snapshots of the data Provides snapshots of the data before revisionbefore revision
• Has since become an ongoing “Bank Has since become an ongoing “Bank project” at the Philadelphia FRB project” at the Philadelphia FRB
Real-Time History (cont.):Real-Time History (cont.):Variables Included at the Phila. Variables Included at the Phila.
FRBFRB• NIPA Income and Product SideNIPA Income and Product Side• Monetary AggregatesMonetary Aggregates• Business Indicators (IP, Capacity Business Indicators (IP, Capacity
Utilization, Housing Starts)Utilization, Housing Starts)• Labor Market (Unemployment, Labor Market (Unemployment,
Employment, Hours Worked)Employment, Hours Worked)• Aggregate Price Indexes (GDP, CPI, Aggregate Price Indexes (GDP, CPI,
PCE) PCE)
Uses of Real-Time Data at the Uses of Real-Time Data at the Philadelphia FRBPhiladelphia FRB
• Analyzing RevisionsAnalyzing Revisions
• Evaluating Survey ForecastsEvaluating Survey Forecasts
• Testing TheoriesTesting Theories
• Conducting Historical Policy Conducting Historical Policy AnalysisAnalysis
(1) Revisions:(1) Revisions:U.S. Personal Saving RateU.S. Personal Saving Rate
• Nakamura and Stark (February 2007): Nakamura and Stark (February 2007): Philadelphia Fed Working Paper No. 07-Philadelphia Fed Working Paper No. 07-88
• Key Findings on Personal Saving Rate:Key Findings on Personal Saving Rate:– Early estimates very unreliableEarly estimates very unreliable– Large upward revisions in benchmarksLarge upward revisions in benchmarks
U.S. Measured Personal Saving Rate (%)U.S. Measured Personal Saving Rate (%)Large Upward RevisionsLarge Upward Revisions
1965 to 2005 1965 to 2005
-2
0
2
4
6
8
10
12
14
1965:03 1975:03 1985:03 1995:03
2005 Q3 Vintage
Advance Estimates
U.S. Measured Personal Saving Rate:U.S. Measured Personal Saving Rate:Distribution of RevisionsDistribution of Revisions
Latest Available Minus Advance EstimateLatest Available Minus Advance Estimate1965 to 20051965 to 2005
0
5
10
15
20
25
30
35
40
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8Revision (pct points)
Co
un
t
Mean: 2.44
Std Dev: 1.88
MSE: 9.52
U.S. Measured Personal Saving Rate:U.S. Measured Personal Saving Rate:Distribution of RevisionsDistribution of Revisions
Last-before-Benchmark Minus Advance Last-before-Benchmark Minus Advance EstimateEstimate
1965 to 20051965 to 2005
0
5
10
15
20
25
30
35
-3.3
-3.0
-2.7
-2.4
-2.1
-1.8
-1.5
-1.2
-0.9
-0.6
-0.3 0.
00.
30.
60.
91.
21.
51.
82.
12.
42.
73.
03.
33.
63.
9
Revision (pct points)
Co
un
t
Mean: 0.08
Std Dev: 1.06
MSE: 1.11
(2) Evaluation of Survey (2) Evaluation of Survey Forecasts:Forecasts:
Survey of Professional ForecastersSurvey of Professional Forecasters
Two Key IssuesTwo Key Issues
• Revised or unrevised realizations Revised or unrevised realizations – Does it matter?Does it matter?– If so, how much?If so, how much?
• Information sets for estimating and Information sets for estimating and forecasting benchmark modelsforecasting benchmark models
Revised or Unrevised Revised or Unrevised Realizations?Realizations?Nowcast RMSE Nowcast RMSE
Q/Q Real GDP Growth (Annual Rate, PPs.)Q/Q Real GDP Growth (Annual Rate, PPs.)Survey of Professional Forecasters, 1985-Survey of Professional Forecasters, 1985-
20052005
1.2
1.4
1.6
1.8
2
2.2
Initial 1 Qtr Later 1 Yr Later 2 Yrs Later Today
Measure of Realization
Revised or Unrevised Revised or Unrevised Realizations?Realizations?
Four-Quarter-Ahead RMSE Four-Quarter-Ahead RMSE Q/Q Real GDP Growth (Annual Rate, PPs.)Q/Q Real GDP Growth (Annual Rate, PPs.)Survey of Professional Forecasters, 1985-Survey of Professional Forecasters, 1985-
20052005
1.2
1.4
1.6
1.8
2
2.2
Initial 1 Qtr Later 1 Yr Later 2 Yrs Later Today
Measure of Realization
Revised or Unrevised Revised or Unrevised Realizations?Realizations?
Nowcast RMSENowcast RMSEQ/Q GDP Inflation (Annual Rate, PPs.)Q/Q GDP Inflation (Annual Rate, PPs.)
Survey of Professional Forecasters, 1985-Survey of Professional Forecasters, 1985-20052005
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
Initial 1 Qtr Later 1 Yr Later 2 Yrs Later Today
Measure of Realization
Revised or Unrevised Revised or Unrevised Realizations?Realizations?
Four-Quarter-Ahead RMSEFour-Quarter-Ahead RMSEQ/Q GDP Inflation (Annual Rate, PPs.)Q/Q GDP Inflation (Annual Rate, PPs.)
Survey of Professional Forecasters, 1985-Survey of Professional Forecasters, 1985-20052005
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
Initial 1 Qtr Later 1 Yr Later 2 Yrs Later Today
Measure of Realization
Benchmark Comparisons:Benchmark Comparisons:Timing of Information SetsTiming of Information Sets
First Quarter SurveyFirst Quarter Survey
Forecasts for Q1,…,Q4,Q1Forecasts for Q1,…,Q4,Q1
January February March
NIPA Release for Q4
Questionnaire sent
R-Time Data Set for NIPA
Survey deadline
January data:
Labor market
Interest rates
Other January data:
Retail Sales, CPI, PPI
Housing Starts
Industrial Production
Benchmark Comparisons: AR ModelsBenchmark Comparisons: AR ModelsRMSE (SPF / AR), 1985 – 2005RMSE (SPF / AR), 1985 – 2005
Q/Q Real GDP GrowthQ/Q Real GDP Growth
Measure of the RealizationMeasure of the Realization
InitialInitial 1-Qtr 1-Qtr LaterLater
1-Year 1-Year LaterLater
2-2-YearsYears
LaterLater
TodayToday
NowcasNowcastt
0.820.82 0.890.89 0.890.89 0.870.87 0.910.91
4-Qtr4-Qtr
AheadAhead 0.990.99 0.970.97 0.960.96 0.980.98 1.011.01
Does The Relative Value of “Nowcast Does The Relative Value of “Nowcast Information” Decline as Data Are Revised?Information” Decline as Data Are Revised?
RMSE (SPF / AR), 1985 – 2005RMSE (SPF / AR), 1985 – 2005Q/Q Real GDP GrowthQ/Q Real GDP Growth
Measure of the RealizationMeasure of the Realization
InitialInitial 1-Qtr 1-Qtr LaterLater
1-Year 1-Year LaterLater
2-2-YearsYears
LaterLater
TodayToday
NowcasNowcastt
0.820.82 0.890.89 0.890.89 0.870.87 0.910.91
4-Qtr4-Qtr
AheadAhead 0.990.99 0.970.97 0.960.96 0.980.98 1.011.01
(3) Testing Economic Theories:(3) Testing Economic Theories:Permanent Income Hypothesis (PIH)Permanent Income Hypothesis (PIH)
• Nakamura and Stark (2007): Nakamura and Stark (2007): Philadelphia Fed Working Paper 07-8Philadelphia Fed Working Paper 07-8
• Test Ireland’s Model of Forecasting Test Ireland’s Model of Forecasting with the PIH in Real Timewith the PIH in Real Time
• Key Findings:Key Findings:– Model works well when estimated on Model works well when estimated on
revised data…revised data…– ……Not so good in real time Not so good in real time
The Model and MethodologyThe Model and Methodology
• Estimate VAR in income growth and Estimate VAR in income growth and the saving ratethe saving rate
• Impose restrictions implied by PIHImpose restrictions implied by PIH• Run horse races between VAR-PIH Run horse races between VAR-PIH
and AR forecasts for income and AR forecasts for income growth…growth…– ……Using Using fully revised datafully revised data– ……Using Using data in hand in real timedata in hand in real time
Results: Forecasts for Income GrowthResults: Forecasts for Income GrowthRMSE (PIH/AR) RatioRMSE (PIH/AR) Ratio
1971 to 19811971 to 1981
Revised DataRevised Data
1-Step1-Step 0.840.84
2-Step2-Step 0.850.85
4-Step4-Step 0.840.84
8-Step8-Step 0.910.91
Results: Forecasts for Income GrowthResults: Forecasts for Income GrowthRMSE (PIH/AR) RatioRMSE (PIH/AR) Ratio
1971 to 19811971 to 1981
Revised DataRevised Data Real-Time DataReal-Time Data
1-Step1-Step 0.840.84 0.940.94
2-Step2-Step 0.850.85 0.990.99
4-Step4-Step 0.840.84 1.021.02
8-Step8-Step 0.910.91 1.061.06
(4) Historical Policy Analysis:(4) Historical Policy Analysis:How Has the Fed Responded to a How Has the Fed Responded to a
Rise in Inflation Expectations?Rise in Inflation Expectations?
• Leduc, Sill, and Stark (2007): Journal of Leduc, Sill, and Stark (2007): Journal of Monetary EconomicsMonetary Economics
• How has the FOMC responded to expected How has the FOMC responded to expected inflation before and after 1979?inflation before and after 1979?
• Requires real-time measure of expectations Requires real-time measure of expectations for inflation: Livingston Surveyfor inflation: Livingston Survey
• Findings: Strong response post-1979.Findings: Strong response post-1979.
The Model and MethodologyThe Model and Methodology
• VAR in actual and expected CPI VAR in actual and expected CPI inflation, unemployment, short-term inflation, unemployment, short-term interest rate, and commodity pricesinterest rate, and commodity prices
• Real-Time Data: Expected inflation from Real-Time Data: Expected inflation from Livingston SurveyLivingston Survey
• Examine impulse responses to a one-Examine impulse responses to a one-time shock to expected inflationtime shock to expected inflation
• Sample period cut at 1979 Sample period cut at 1979
We Examine the Effect That a One We Examine the Effect That a One Percentage Point Shock to (Livingston) Percentage Point Shock to (Livingston)
Inflation Expectations….Inflation Expectations….
-0.5
0
0.5
1
1.5
1 2 3 4 5 6 7 8 9 10 11 12
-0.5
0
0.5
1
1.5
1 2 3 4 5 6 7 8 9 10 11 12
Pre-1979 Post-1979
Effect of Shock on Expectations for Inflation
……Has on Inflation and the Real RateHas on Inflation and the Real Rate
-0.5
0
0.5
1
1.5
2
1 2 3 4 5 6 7 8 9 10 11 12-1
0
1
2
1 2 3 4 5 6 7 8 9 10 11 12
-1
-0.5
0
0.5
1
1 2 3 4 5 6 7 8 9 10 11 12-1
-0.5
0
0.5
1
1.5
2
1 2 3 4 5 6 7 8 9 10 11 12
Pre-1979 Post-1979
Inflation
Real Rate
Concluding Remarks:Concluding Remarks:Upcoming ChangesUpcoming Changes
• May 2, 2008May 2, 2008: INDUSTRY dummy variable added to : INDUSTRY dummy variable added to micro data set for SPF forecastersmicro data set for SPF forecasters– Allows analysts to cut the data according to panelists Allows analysts to cut the data according to panelists
employed in financial and nonfinancial sectors employed in financial and nonfinancial sectors
• Summer 2008:Summer 2008: New data-download pages for SPF New data-download pages for SPF and real-time data setsand real-time data sets– Easier downloads for usersEasier downloads for users
• Summer 2008: Summer 2008: Forecast error statistics for (mostly) Forecast error statistics for (mostly) all variables in SPFall variables in SPF
• Ongoing:Ongoing: New variables and more frequent New variables and more frequent vintages in real-time data set [joint with Dean vintages in real-time data set [joint with Dean Croushore]Croushore]– Monthly vintages for NIPA variablesMonthly vintages for NIPA variables– Price indexes for PCE and core PCEPrice indexes for PCE and core PCE– Detailed components from BEA’s personal income reportDetailed components from BEA’s personal income report
