Eurostat – Unit C4 Key indicators for the European policies EU Workshop on Recent Developments in...

Eurostat – Unit C4 Key indicators for the European policies

EU Workshop on Recent Developments in Business and Consumer Surveys

Hotel Bedford, 135-137,Hotel Bedford, 135-137,

Rue du Midi, 1000 BrusselsRue du Midi, 1000 Brussels

15-16 November 201215-16 November 2012

Eurostat – Unit C4 Key indicators for European policies

On-going international work and prospects in the field of BCS

A statistical overview of the economic situation in the

euro areaBy

Gian Luigi Mazzi

Filippo Moauro

Rosa Ruggeri-Cannata


Outline

Introduction PEEIs' nowcasts: a bridge modelling approach

real time simulation exercise PEEIs' nowcasts: an unobserved component based

approach

performance of EuroMIND based on survey data The system of turning point detection Real time monitoring and the early warning system Conclusions

Background

PEEIs: a tool for short term economic monitoring based on official statistics

Picture for the euro area rather incomplete for 2012

- few monthly data

- quarterly GDP only for the second quarter

- employment provided with delay Updated picture for the euro area

- combining official statistics and econometric techniques


Most recent evolution of main PEEIs


2011q2 2011q3 2011q4 2012q1 2012q2 2012q3

GDP % (Q/Q-1) 0.2 0.1 -0.3 0.0 -0.2 -0.1

% (Q/Q-4) 1.7 1.3 0.3 0.3 -0.9 -0.6

Employment % (Q/Q-1) 0.2 -0.1 -0.3 -0.3 0.0 -0.2

% (Q/Q-4) 0.5 0.3 -0.1 -0.5 -0.6 -0.7

2012m5 2012 m6 2012m7 2012m8 2012m9 2012m10

HICP % (M/M-1) -0.1 -0.1 -0.5 0.4 0.7 0.2

% (M/M-12) 2.4 2.4 2.4 2.6 2.6 2.5

PPI % (M/M-1) -0.5 -0.5 0.3 0.9 0.2 0.0

% (M/M-12) 2.3 1.8 1.6 2.7 2.7 2.6

IPI % (M/M-1) 1.0 -0.5 0.6 0.6 -0.7 -

% (M/M-12) -2.6 -2.0 -2.8 -2.9 -1.0 -

Unemployment rate % 11.3 11.4 11.5 11.5 11.6 -

ESI Index 90.5 89.9 87.9 86.1 85.2 84.5

Note: forecasts (in red) obtained by a bridge modelling approach

GDP growth by country


2011q2 2011q3 2011q4 2012q1 2012q2 2012q3

Belgium 0.2 0.0 -0.1 0.2 -0.5 0.0

Netherlands 0.0 -0.3 -0.6 0.2 0.2 0.1

Spain 0.2 0.0 -0.5 -0.3 -0.4 -0.5

Italy 0.3 -0.2 -0.7 -0.8 -0.8 -0.8

France 0.0 0.3 0.0 0.0 0.0 0.1

Germany 0.5 0.4 -0.1 0.5 0.3 0.2

Euro area 0.2 0.1 -0.3 0.0 -0.2 -0.1

Note: forecasts (in red) obtained by a bridge modelling approach


Quarterly GDP of the euro area

Billions of euro, chain-linked volumes, reference year 2000

1400

1500

1600

1700

1800

1900

2000

1995

Q1

1995

Q4

1996

Q3

1997

Q2

1998

Q1

1998

Q4

1999

Q3

2000

Q2

2001

Q1

2001

Q4

2002

Q3

2003

Q2

2004

Q1

2004

Q4

2005

Q3

2006

Q2

2007

Q1

2007

Q4

2008

Q3

2009

Q2

2010

Q1

2010

Q4

2011

Q3

variations over prevoius quarter

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

variations over same quarter of prevoius year

-6.0

-4.0

-2.0

0.0

2.0

4.0

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

variations over same quarter of prevoius year

-8

-6

-4

-2

0

2

4

6

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

Germany France

Italy Spain

Netherlands Belgium

Some comments: the euro area in the first 3 quarters of 2012 3 negative signs of GDP growth in last 4 quarters Persisting slowdown of employment accompanied by a

rising unemployment rate Pretty stable inflation Negative perception of the economic situation by

producers and consumers as shown by the ESI


Some comments: economic growth at country level Germany shows a recovery after the negative result in

2011Q4 The growth in France is rather weak Belgium shows a stop and go development in last

quarters. Netherlands shows a positive growth in all quarters of

2012 after two consecutive negative quarters. Italy and Spain continue in their negative trend Trend in France is flat and never negative in last

quarters



PEEIs' nowcasts: the Eurostat BM approach (1)

p

i

k

j

q

ltltjjlitit Ttuxycy

1 1 0, ,...,1 ,

yt is the dependent variable observed over the sample period t = 1, …, T taken in its first (log-) differences, with Δ the difference operator such that Δyt = yt - yt-1;

c is an intercept; αi and βjl are regression coefficients respectively related

to Δyt-l and to a set of k predictors xjt, j=1, …, k, ;

ut is a mean zero disturbance with variance σ2.

general specification adaptable to the case of cointegration among implied variables imposing suitable coefficient restrictions error correction (EC) terms.


PEEIs' nowcasts: the Eurostat BM approach (2)

BM approach in 3 steps:

a)xit are projected over a forecast horizon by means of a univariate time series technique;

b)the indicator is temporal aggregated at the same time span of the target variable;

c)parameter estimation of model (1) is carried out to determine the coincident indicator over the full sample period t=1,2, …, T.

Variable selection is carried through the least angle regression (LARS) algorithm by Bai and Ng (2008) able to selecting a set of targeted predictors to obtain the most accurate nowcasts.


BM specification: GDP, Employment and IPI

Δln(GDPt) Δln (Emplt) Δln(IPIt)

GDP ln(yt-1) - -Employment - ln(yt-1) -IPI Δln(xt) ln(xt-1) Δln(xt-1), Δln(xt-2)

Retail Sales ln(xt-1), Δln(xt) - -Exports ln(xt-1), Δln(xt) - -Construction output Δln(xt) - -Unemployment rate Δln(xt) Δln(xt) -Exchange rate euro/$ Δln(xt-1), Δln(xt-2) - -

Business and consumer surveysPresent business situation Δ(xt) - -Major purchases over next 12 months xt-1 - -

Industrial confidence - Δ(xt)xt,

Δxt-h·|Δxt-h|with h=1,2,3

Construction confidence - Δ(xt-1) -Construction opinion on activity - Δ(xt) -Construction employment expectation - xt-2 -Note: Δ denotes the difference operator, ln the logarithm and Δx t-h·|Δxt-h| the squared difference with sign transformation


Real time experiment and error statistics

2011q1

2011q2

2011q3

2011q4

2012q1

2012q2 MAE RMSE

GDP0.63

(-0.20)0.44

(0.27)-0.02

(-0.17)-0.40

(-0.10)0.00

(0.00)0.00

(0.20)0.26 0.30

Employment0.22

(0.17)0.13

(-0.18)-0.01

(0.11)-0.07

(0.15)-0.08

(0.11)-0.16

(-0.19)0.18 0.19

2012Febr.

2012March

2012 April

2012 May

2012 June

2012 July MAE RMSE

IPI0.50

(-0.01)0.05

(0.34)0.07

(0.89)0.15

(-0.41)-0.43

(0.22)-0.49

(-1.09)0.57 0.73

Note: Nowcasts are in growth rates with, in parenthesis, errors computed as difference from respective first official Eurostat release. MAE is the mean absolute error and RMSE is the root mean squared error over the quarters from 2010q1 to 2012q2 for GDP and Employment and over the months from January 2010 to July 2012 for IPI

EuroMind: an overview

Monthly indicator of economic activity Proxy of GDP Combining Stock and Watson approach with temporal

disaggregation in the state-space framework Monthly EuroMind estimates calculated by aggregation

of all output and expenditure sides component: recnciliation obtained by weigthed averages of the two monthly estimates


EuroMind: main characteristics

1) use of a disaggregate approach output and expenditure breakdowns of quarterly GDP;

2) for each component, selection of indicators;

3) monthly and quarterly indicators modelled into the Stock and Watson single index model;

4) state space form allowing for temporal disaggregation;

5) use of a computational efficient procedure;

6) chain-linking is taken into account;

7) final estimate combining the estimates from the output and expenditure sides optimal weights;

8) benchmarking to official quarterly accounts

9) explicit measure of uncertainty around the indicator available.


EuroMind extensions

EuroMind-S: more coincident version of EuroMind based on a two factor Stock and Watson model where one factor models the effects of qualitative information

EuroMind-C: medium size factor model simultaneously modelling euro area and largest countries

EuroMind-B: back calculated version of EuroMind to 1970 – No back calculation of components available

EuroMind-Gap: euro area output estimates derived from EuroMind by means of a state-space modelling of trend and cycle


EuroMind-S: last 13 releases


EuroMIND-S: ME, MAE and RMSE statistics (revisions errors over the quarters 2010q2-2012q2)


1 step 2 steps 3 steps

ME 0.04 0.01 0.11

MAE 0.12 0.11 0.15

RMSE 0.14 0.13 0.17

Growth rates: comparison among indicators------------------- 2011

------------------------------------------------------------- 2012

--------------------------------------

Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept

------------------------------------------ variations over previous period ------------------------------------------------

Quarterly GDP - 0.1 - - -0.3 - - 0.0 - - -0.2 - - -

EuroMind 0.1 -0.4 -0.1 0.0 -0.2 0.1 -0.2 0.2 -0.4 0.2 0.0 0.2 0.2 -

EuroMind-S 0.0 -0.3 0.0 -0.1 -0.2 0.2 -0.1 0.2 -0.3 0.0 0.1 0.1 0.1 0.1

---------------------------------- variations over same period of previous year ----------------------------------------

Quarterly GDP - 1.3 - - 0.3 - - 0.3 - - -0.9 - - -

EuroMind 1.5 1.0 0.7 0.6 0.5 0.3 -0.3 0.0 -0.6 -0.5 -0.3 -0.4 -0.2 -

EuroMind-S 1.4 1.0 0.7 0.6 0.5 0.3 -0.3 -0.1 -0.5 -0.5 -0.3 -0.4 -0.3 0.1


The system of euro area turning point detection (1) Euro area dating: business, growth, and

acceleration cycle– non-parametric dating rule

Euro area system for turning point detection: three coincident indicators– BCCI: Business Cycle Coincident Indicator– GCCI: Growth Cycle Coincident Indicator– ACCI: Acceleration Cycle Coincident Indicator


The system of euro area turning point detection (2) BCCI: averaging probability recessions returned by univariate

Markov switching models fitted to each of the three component series: unemployement, industrial production index, new car registrations

GCCI: averaging probability recessions returned by univariate Markov switching models fitted to each of the five component series: industrial production index, conctruction confidence indicator, financial situation of households during the last 12 months, imports of intermediate goods, employement expectations

ACCI: recession probability returned by the Markov switching model fitted to the Economic Sentiment Indicator


MS-VAR GCCI and MS-VAR BCCI MSIH(4) – VAR(0) model fitted on 4 variables

1) Industrial Production Index (differenced over 6 months)

2) Unemployment Rate (inverted diff. over 1 month)

3) New Passenger Car Registrations (diff. over 3 months)

4) Employment Expectations (diff. over 1 month) Both indicators jointly obtained as a by-product of model

parameters estimation:

MS-VAR BCCI filtered probabilities of the first regime of the state-variable (regimes of the latent Markov-chain are sorted in ascending order of the state-dependent intercept);

MS-VAR GCCI sum of filtered probabilities of the first and second regimes.


The αABβCD sequence


Classical cycle

trend

series in level

A

B

DC

α

β

B

Growth cycle

AC

A

D

Acceleration cycle

AC

α

β

Summary of most recent turning points

Economic Cycle Coincident Indicator Peak Trough Peak

Acceleration Cycle

Provisional Dating 2006 Q1 2008 Q1 2010 Q2

ACCI June 2006 March 2009 December 2010

December 2010 December 2011 March 2012

Growth Cycle


GCCI March 2007 July 2009 August 2011

Multivariate December 2007 September 2009 May 2011

Classical Business Cycle


BCCI August 2008 October 2009 January 2012

Multivariate April 2008 September 2009 December 2011


Some comments

Euro area growth cycle persists in slowdown phase started in middle 2011

Euro area business cycle entered in recession phase at the end of 2011

After a long deceleration phase the acceleration cycle entered in a new acceleration phase since January 2012

Synthesis the already achieved trough of the acceleration cycle

could be a positive signal for a quite fast recovery from the new recession


Thank you for your attention!


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