Economic forecasts

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EUROPEAN COMMISSION DIRECTORATE GENERAL ECONOMIC
AND FINANCIAL AFFAIRS Economies of the Member
States
How Reliable are Statistics for the Stability and
Growth Pact?European Economy-Economic Papers
273Notas Estadísticas (Banco de España) 4
João Nogueira Martinsco-author with Luis Gordo
(Bank of Spain) DG ECFINEuropean Commission
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Motivation

• Inconsistency between
• the rhythm at which statistics are compiled and
  revised
• the deadlines for political decisions under the
  SGP
• Statistics are compiled three months after the
  end of the year and revised for four years until
  they become final
• Policy decisions are taken in the space of a few
  months
• Policy decisions are taken on the basis of
  preliminary data which are subject to large
  revisions.
• Revisions often appear too late to be taken into
  account
• Compare with other administrative uses (e.g.
  GNI,)

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Revisions that revealedpolicy (or procedure)
errors

• Finland
• Abrogation of excessive deficit procedure in
  spring 1997
• Deficit data revised from below to above 3 of
  GDP
• Portugal
• Excessive deficit procedure in 2002
• Deficit data revised from below to above 3 of
  GDP
• Procedure started 6 months later than usual
• Greece
• Several major revisions. The deficit was never
  below 3 of GDP
• Abrogation of excessive deficit procedure should
  have never taken place
• Italy
• Excessive deficit procedure in 2005
• Deficit was above 3 for some time
• Procedure started late
• Portugal, Spain and France joined the euro area
  with deficits above 3 of GDP.

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• It is unrealistic to slow down the SGP-related
  procedure
• The fundamental objective of the excessive
  deficit procedure is to identify, as quickly as
  possible, a situation of excessive deficit or
  debt and to put an end to it.ECOFIN Council
  Conclusions on statistical governance,8 November
  2005
• It is illusory to accelerate significantly the
  production of fiscal statistics.
• Is there a third way?
• To be explicitly aware of potential revisions.
• Countries are not equal in terms of reliability.
• Reliability increases with time.

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Quality of statisticsA multi dimensional concept

• Relevance
• Timeliness
• Punctuality
• Accessibility
• Coherence
• Completeness
• Comparability across time and space
• Accuracy
• Reliability
• It refers to the closeness of the initial
  estimated value to the subsequently revised
  values
• Transparency
• Interpretability
• Credibility
• Cost-efficiency

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Available sample for EU-15

• Data reported in spring and autumn each year
  since 1994.
• Each reporting covers years t-1 to t-4
• Available series start in 1990
• Latest transmission covers years 2002-2005 (now
  also 2006)

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Available sample
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Available sample for EU-15

• Each year is reported 8 times. (8 ages)
• For 2006, we only have data of age 1
• Data of age 2 for 2006 will arrive by
  end-September
• For 2005, we have data of age 1, 2 and 3
• For 2004 data of ages 1 to 5
• For 2003 data of ages 1 to 7
• For 1993 to 2002 data of ages 1 to 8
• For 1992 data of ages 3 to 8
• For 1991 data of ages 5 to 8
• For 1990 data of ages 7 and 8
• Slightly shorter series for AT, SE, FI
• EU-10 are not covered for the time being. Greece
  also partially excluded from analysis

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Structural revisions and years with only a few
agesreduce the available sample
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Revisions

• Numerator (deficit / debt)
• Denominator (GDP)
• Our analysis concerns the reliability of the
  numerator
• GDP routine revisions rarely have any impact on
  the deficit ratio
• A routine revision of 1 in GDP level (a very and
  large revision) would reduce the deficit ratio
  from 3.00 to 2.97

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Revisions

• Routine revisions
• New information
• Errors or inconsistencies identified
• Small steps to better comply with the rules
• Structural revisions
• Change in accounting systems (ESA79 to ESA95)
• Large structural errors corrected
• Major changes in accounting systems of Member
  States
• An analysis of reliability is only concerned
  about routine revisions

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Calculating average revisionsand standard
deviations
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Calculating average revisionsand standard
deviations
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Calculating average revisionsand standard
deviations
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Revisions

• Routine revisions
• New information
• Errors or inconsistencies identified
• Small steps to better comply with the rules
• Structural revisions
• Change in accounting systems (ESA79 to ESA95)
• Large structural errors corrected
• Major changes in accounting systems of Member
  States
• An analysis of reliability is only concerned
  about routine revisions

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Impact of structural breaks Are we
underestimating reliability?
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Deficit and debtWhich are more
reliable?Two approaches
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Did data become less reliable because of ESA95?
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Is there a link between deficit ratio is
revisions?
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Conclusions (1)

• Policy makers should be made aware that data are
  subject to revisions
• One cannot anticipate revisions, but countries
  are different
• useful to make explicit uncertainty ranges
  around the reported data
• Countercheck official deficit data with other
  indicators

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Conclusions (2)

• FR, DE, UK most reliable deficit
• (GR), DK, PT, LU, SE, IT largest dispersion of
  revisions
• Large countries report better data?
• (but compare IT and IE)
• (GR), IT, PT largest deficit-increasing
  revisions
• DK, SE large revisions, offsetting each other
• (in line with other evidence, e.g. statistical
  discrepancies)

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Conclusions (3)

• Debt not necessarily more reliable than deficit
• Debt better than deficit DE, ES, LU, IT, PT
• Deficit better than debt BE, FR, AT, FI
• Conjecture Institutional issues (deficit and
  debt compilation debt decentralisation,
  consolidation, financing of public enterprises)
  explain these differences

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Conclusions (4)

• There is no evidence that shift from ESA79 to
  ESA95 has led to a deterioration of reliability
• Complex rules, more experience, better
  technology,

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Conclusions (5)

• Size of deficit may have an impact on revisions
• Is 3 a focal point?
• Biased sample?
• Independence of data compilers?

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Conclusions (6)

• Revisions are not an indicator of quality
• Reliability is only one dimension of quality
• Revision are inevitable even desirable
• Regular analysis of revisions
• Improvement in processes.

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Conclusions (7)

• It would be very useful to compare EU Member
  States with other OECD countries
• Does the SGP have an impact on the behaviour of
  data compilers?

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EUROPEAN COMMISSION DIRECTORATE GENERAL ECONOMIC
AND FINANCIAL AFFAIRS
How Reliable are Statistics for the Stability and
Growth Pact?
Comments and questions WELCOME Thanks for your
attention!!