Workshop on the Methodological Review of Benchmarking, Rebasing

and Chain-linking of Economic Indicators

24-26 August 2011, Vientiane, Lao People’s Democratic Republic

Vu Quang Viet

Why benchmarking?Economic statistics and national accounts are estimates

that are extrapolated from a base year using short-term indicators.

Data from a base year is considered the most reliable as they are based on economic census that covers the complete population.

Short-tem indicators are based on survey (or administrative report) of a limited number of units in an activity that deems to signify the full activity.

When a new base year is compiled, the estimates must be benchmarked to the data of the new base year.

What are normally benchmarked?Quarterly values are benchmarked so that the sum

of quarterly values is the same of the annual value.Annual estimates should be benchmarked so that

the last annual estimate should match the benchmark value.

These benchmarking applies to an individual statistics or a composite statistics such as quarterly GDP and annual GDP.

Preferred approach: benchmark each individual statistic series.

IndicatorsEconomic performance indicators are mostly

drawn from annual or quarterly accounts and therefore are fully consistent with one another and provide useful overview of the economy, its strength as well as weakness.

However, they need to be supplemented by other important indicators that are prepared from specialized statistics such as monetary and government budget statistics.

All indicators would be more meaningful in the context of changes over time, therefore, time series of statistics are required.

National accounts aggregates as indicatorsIndicators based solely on national account

aggregates.Familiar indicators are: rate of growth in GDP, final

consumption, investment in fixed assets, saving rate (saving/GDP), investment rate, effective individual and corporate tax rates, etc.

These indicators can be derived directly from national account data. They allow to compare not only the performance of the economy over time but also to other countries of the same level of development.

Consumer prices indexes.Producer price indexes (or wholesale price

indexes).

Indicators that relate national accounts with other indicators Government budget balance / GDP. Current external account balance / GDP. Foreign debt payment / export (which

includes both interest payment and payment principal).

Etc.

Indicators that are used to national accounts aggregatesIndustrial production indexes.Crop yield indexes.Employment indexes, based on:

Establishment survey that captures only employment in formal activities that are covered by updated census frame

Household survey that captures employment in informal activities.

Retail sale indexes.Investment (GCF) indexes.

Use of indicators for extrapolationBase year: 2000.It-1,t : Volume index indicating growth from t-1 to t.

Q: Value in constant prices.

Q2000,t = Q2000,t-1*It-1,t

Other specialized indicatorsNon-performing loan ratio.Foreign exchange reserves (reserve over

average monthly imports).Short-term liability denominated in foreign

currencies. Leading, coincident and lagging indicators

to track the economy: Inventory over sale (leading indicator)GDP (coincident indicator)Employment (lagging indicator)

Comments on indicators To be useful, indicators must be timely.Quarterly accounts are extremely useful.For quarterly accounts, other indicators must

be available monthly, particularly important:CPI, PPIIndustrial production indexesEmploymentRetail sales

UN recommenations on short-term indicatorsTo be distributed.

Topics to be discussedBenchmarking a series of values of annual

estimates to match the new annual value of the benchmark year. Benchmarking growth rate approach

Benchmarking the sum of the quarterly GDP to the annual value of GDP.Pro rate distribution of discrepancy methodThe Bassie methodThe Denton method

Linking seasonally unadjusted quarterly data

Scheme for growth and value benchmarking of annual data

Conditions:New rates of growth are close to the old rates of growthThe new rates of growth should permit the obtaining of

the new benchmark value at the new benchmark period.

Benchmark year 1 =10

Benchmark year 2 =13

Annual Estimates

Example for benchmarking annual valuesTime period 1 2 3 4Preliminary GDP 10 11 11.5 12

Actual benchmark value 13GDP after benchmarking 10 11.3 12.1 13

Method for benchmarkingFind the percentage growth difference between the

estimate and the new benchmark for the same benchmark year.

= 13/12=1.083

Distribute that percentage difference to the n-years in the old series.

= (1.083)^(1/3) = 1.027

New rate of growth = old rate * ig

A benchmarking is linking

This will be discussed by Benson Sim.

Benchmark quarterly data to annual data – pro rata method

Quarterly Values

Total annual Value 

New Quarterly Values

Q1 970.0 977.1Q2 995.7 1003.0Q3 1009.5 1016.9Q4 995.7 1003.0Sum 3970.9 4000.0 4000.0

Percentage Difference

4000/3970.9=1.07

Problems of pro-rata method

 

1991

Quarter values

Rates of change

Annual value

New Quarterly values

Adjusted rates of change

Q1 970.0     977.1  

Q2 995.7 2.6%   1003.0 2.65%

Q3 1009.5 1.4%   1016.9 1.39%

Q4 995.7 -1.4%   1003.0 -1.37%

Sum 3970.9  1.007 4000 4000  

1992          

Q1 977.9 -1.8%   1018.5 1.5%

Q2 1003.6 2.6%   1045.2 2.6%

Q3 1014.4 1.1%   1056.5 1.1%

Q4 1002.6 -1.2%   1044.2 -1.2%

Sum 3998.5 1.041 4164.4 4164.4 4%

Step proble

m

Other methods Bassie method aims at allocating the values so as to

reduce the reduction in the first year and increase the value in the second year to reduce the step problem.

Denton method aims at minimizing the difference in the rates of growth of the old and the new series, while maintaining the annual value equal the sum of the quarters. This requires software. STATA IS THE SOFTWARE THAT CAN DO THE JOB.

Observations: All methods are mechanical. It is thus important to review the indicators and see if they are good indicators or if they should be replaced.

Index linking seasonally unadjusted data: method