Advisory Expert Group Backcasting

ADVISORY EXPERT GROUPBACKCASTING

Statistics Canada

For discussion

The need for National Account time series

Considerations and constraints

Possible approaches

The need for guidance

2 Statistics Canada • Statistique Canada

Main functions of the National Accounts

The National Accounts allow users to examine the structure of the economy and the evolution of the economy.

Users require a time-series of economic data in order to undertake:• monetary and fiscal policy and monitoring;

• structural analysis (productivity, input-output or GE modelling);

• forecasting and business cycle analysis

• administrative uses;

• environment-economy linkages; and

• research uses.


How long is long enough?

The National Accounts (NA) record the macroeconomic history of a nation. The data along, with associated contextual and analytical information, is a national asset that needs to be both preserved and invested in.

The greater the coverage of an NA time series, the greater the benefit, since one of the uses is to compare recent events to similar economic developments of the past.

The greater the number of economic developments covered by the time series the greater the use to policy makers.


Why it should be done by the NSO

An argument can be made that backcasting should be left to the users—the NSO need only supply the metadata required to backcast the data.

This is countered (mainly by users) that:• The NSO is in the best position to backcast the data given their

intimate knowledge of the data and accounting rules.• This would avoid multiple ‘official’ measures due to differences

in approaches.• NSO compilation lends credibility to the data.


An NSO can take a number of different approaches to backcasting. These include:

Publishing breaks in the time series Backcasting a portion of the time series with partial detail Backcasting a portion of the time series with full detail Backcasting the full time series with partial detail Backcasting the full time series with full detail


Considerations and constraints to backcasting


There are some important considerations and constraints national accountants face when backcasting National Account time series. These include:

• Time• Human capacity• Legislative / administrative uses of the data• Coordination (e.g., integrated accounts, decentralized accounts)• Availability of source data and quality of source data• Significance of the changes to be backcasted

The approach taken in large part is determined by the above factors.

Statistics Canada • Statistique Canada7


In order to properly backcast data, the NA compiler needs to have an important understanding of the economic history of the country including:

• Business cycles• Major economic events• Structural Changes• Changes in government policy• Knowledge of government programs• Demographic trends• Etc...

A lack of understanding in these areas could result in more damage than good.


Example – Provincial and Territorial Accounts of Canada



Revising an integrated set of accounts is an additional challenge in terms of:

• Project management• Time constraints• Quality assurance• Scope

For example, in Canada the benchmark estimates for GDP are established when compiling the supply-use tables. When conducting a historical revision it is not realistic to backcast detailed supply-use tables given the source data and time constraints. At the same time there is a desire to preserve the integrated nature of the accounts—it may not always be possible to preserve the same level of integration when backcasting NA data.


Backcasting techniques

• There are many different ways to backcast NA data. Some possible approaches include: Linking Recompilation Estimation / modelling Metadata approach

Most likely backcasting will involve a combination of the above techniques—the challenge is to understand when a particular approach is appropriate.


Possible techniques – linking

• Approach Linking datasets requires that the new NA dataset and the old

NA dataset overlap for at least a single period. The level associated with the new NA dataset is backcast using

the movements of the vintage NA dataset.

• Implications The advantage of this approach is that it is straightforward to

implement and does not require any vintage base statistics. There are major drawbacks to this approach in that it assumes

that the impact of the changes in the overlap period are the same for the entire period being backcast. In addition, it could result in changing the amplitude of the business-cycle and the weight of certain series in an aggregate.



Possible techniques – linking

Possible techniques – recompilation

• Approach This requires re-compiling the entire NA database (or parts

of it) from it’s elemental level using source data or proxy information.

• Implications The advantage of this approach is the high quality

estimates it produces. The drawback of this approach is the time and cost, as

well as the requirement for detailed source data, which, if available, may not always exist in a consistent time series.



Possible techniques – recompilation

Possible techniques – estimation/modelling


• Approach(es)• Using auxiliary information: for example, using balance sheet data and assumptions

about rates of return to estimate income flows• Balancing techniques / residual calculations: for example, calculating net operating

surplus of corporations using the expenditure side as the benchmark measure of GDP• Instrumental variable technique: for example, using employment and wage

relationships to back-cast industry production or productivity• Triangulation: using two or more of the methods above in order to do quality

assurance

• Implication• The advantage of this approach is that it is not data intensive or labour intensive and

does not assume the relationship in the link year holds for the backcasted portion of the time series.

• The disadvantage of this approach is that this can usually only be done for selected variables. Also, the new estimates do not benefit from being constructed within a framework as it assumes the relationships between the NA variables and instrumental variables hold for the entire time period.

Possible techniques – estimation Modelling (example)


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1926 1941 1956 1971 1986 2001

GDPI GDPI 1961 1986 GDPI Projector

Year

Log index (2000 = 100)

Possible techniques – metadata approach

• Approach The NSO does not attempt to link the NA databases, but

rather provides metadata explaining the differences between the databases.

• Implications The advantages of this approach are its limited use of

resources and time The disadvantage of this approach includes difficulty for

users in compiling NA time series and the potential for multiple versions of NA time series.






Possible techniques – metadata approach (example)


Time series Frequency In use until International manual or guide

CSNA Manual or Guide

1926-1996 Annual 1997 Orange Book

1947q1-1997q2 Quarterly 1997 SNA 1968 Orange Book

1961q1-2012q2 Quarterly 2012 SNA 1993 Blue Book

1981q1-present Quarterly On-going SNA 2008 Red Book

Changes between CSNA 2008 and CSNA 1993Classifications systems

Household Final Consumption ExpenditureNorth American Product Classification SystemNorth American Industrial Classification SystemAsset and Liabilities

Sectors-Persons and unincorporated businesses, -corporations +household, +NPISH, +financial corporations + non-financial corporations, + Aboriginal general government

Asset boundaryResearch and development, weapons systems

Major presentational changes

Lessons learned at Statistics Canada

You need to be an economic historian Information management is important Saving for later is a bad idea:• It is difficult to “get back to it’• Fatigue prevents it• Key staff departures• Memory fades...

The classification system of today is not the right classification system for yesterday and will not be the right classification system for tomorrow.

Scale the project to avaliable Communicate, Communicate, Communicate...



“I made the following chart to illustrate one of the great frustrations that journalists, economists and academics have with StatsCan. One minute, the agency, tasked with measuring the tick tock of the economy and society, tracks seemingly vital data (such as detailed breakdowns of public sector employment and wages by all levels of government, or the total value of government transfer payments to persons by province and type of transfer), the next, *poof*, they’re terminated.Good thing StatsCan still tracks the square footage of fungi production.” By Jason Kirbyhttp://www.macleans.ca/economy/economicanalysis/the-case-of-the-disappearing-statistics-canada-data/August 13, 2014

Lessons learned at Statistics Canada

http://www.macleans.ca/wp-content/uploads/2014/06/Of-mushrooms-and-government-employment.jpg

Questions for the AEG to consider

Does the NA community need to work together to establish best practices and general approaches to backcasting?

If so what should be included in such a guide?


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Advisory Expert Group Backcasting

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