Estimating Turning Points Using Large Data Sets

Transcription

1 Estimating Turning Points Using Large Data Sets Jim Stock and Mark Watson 30th CIRET Conference October 15, 2010 New York City 10/15/2010 1

2 CAMBRIDGE September 20, The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economywide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve's index of industrial production (IP). 10/15/2010 2

3 CAMBRIDGE September 20, The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economywide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve's index of industrial production (IP). (Similar CEPR, Brazil, ) 10/15/2010 3

4 The Evolution of the dating process at the NBER 1. Pre-WWII (Burns and Mitchell) (Moore, Zarnowitz, other NBER Staff) 3. Post 1978 (BC Dating Committee) 10/15/2010 4

5 Burns and Mitchell (1947) :... A reference scale of business cycles must be extracted from the fallible indications provided by time series for varied economic activities 10/15/2010 5

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8 Post-War / Pre-Business Cycle Dating Committee: Moore and Zarnowitz and others extended/updated system of BC Indicators Key Indicators Key Indicators 1968 Business Conditions Digest (BCD), U.S. Department of Commerce Mid 1990s Indicators move to The Conference Board 10/15/2010 8

9 From Moore (1961) 10/15/2010 9

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13 Evolution of NBER Dating from (1) Dating turning points in many series and then averaging turning points. (Date Then Average) to (2) Averaging many series into a single aggregate and then dating the turning points in the aggregate. (Average Then Date). Bulk of academic and real-time practice follows Average-then-Date. (Large literature recent papers include Chauvet and Piger (2008) and Hamilton (2010) 10/15/

14 This paper: (a) Formalize Date-then-Average approach (b) Empirical comparison D-T-A and A-T-D approaches for the U.S. (post 1960). 10/15/

15 Step 1: Determining Specific Cycles: Bry-Boschan (Burns-Mitchell Method) 10/15/

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18 Brief Discussion of Average-then-Date 10/15/

19 Key issue for Average Then Date Weights: Value-added weights versus covariance statistical weights (factor model) Production versus employment versus??? Two approaches pursued here: (1) Value-Added-Weights: Estimate Monthly Real GDP (2) Dynamic Factor Model: y it = µ i + β i (L) c t + u it (Large N versus small N) TCB Index of Coincident Indicators as approximation 10/15/

20 Monthly Interpolated Values of GDP GDP (Expenditures Consumption Investment Residential Structures NonResidential Structure Equipment and Software Change in Inventories Imports Exports Government GDP (Income) Employee Compensation Propietors Income Rental Income Net Interest Corporate Profits Odds and Ends 10/15/

21 Inverse Standard Deviation Weighting of TCB four Coincident Indicators 10/15/

22 Monthly Distributed GDP/GDI 10/15/

23 Date-then-Average: Population, estimand, sampling scheme Population of disaggregated series (treat this as an infinite population) Induces population distribution of turning points o Turning point τ defined to be Bry-Boschan (1971) date BB is definitional o episode s (±12 months of a NBER turning point) o population distribution of turning points g s Estimand: given that a turning point occurred the turning point is defined to be the mode of g s (Burns and Mitchell definition). Also consider median and mean. (We don t analyze Harding-Pagan algorithm [also a measure of central tendency of clusters].) Sampling: sample of series sample of BB turning points o Simple random sample of series o stratified sampling of series 10/15/

24 Dating using a simple random sample of disaggregated series Data: sample {τ is } of turning points, i = 1,, n, within episode s. Note that TPs are integers (months) (i) Mode: estimate mode as mode of kernel density estimator within the episode. Kernel K (Parzen (1962), also see Romano (1988) and Ziegler (2003)) [ ] 2 mode g 3 mode nh s ( D ˆ mode d s( D ) s K '( z) dz s D s ) N 0, mode 2 gs''( Ds ) Precision depends inversely on curvature of density Improvements possible in theory using higher-order kernels but we found them non-robust in practice. All densities estimated using Epinechnikov kernel 10/15/

25 Dating using a simple random sample, ctd. (ii) Mean n ( D s mean ˆ s mean D s ) d 2 N(0, σ τ,s 2 ), where σ τ,s = var(τ is ) (iii) Median n ( D s med ˆ s med D s ) 1 d N 0, 4 ( med ) 2 gs Ds Not considered: the Burns-Mitchell close of transition period rule this was judgmental not clear how to implement it 10/15/

26 Date-Then-Average: Monthly data set of real indicators 270 disaggregates (total) of employment, IP, personal income, & sales, U.S. o Paper discusses adjustment methods for stratified random sampling Monthly, focus on 1959:1 2009:7 Lots of missing data (blocks) 10/15/

27 Manufacturing Mining Utilities Durable NonDurable IP: Industry IP: Wood product NAICS=321, SA IP: Nonmetallic mineral product NAICS=327, SA IP: Primary metal NAICS=331, SA IP: Fabricated metal product NAICS=332, SA IP: Machinery NAICS=333, SA IP: Computer and electronic product NAICS=334, SA IP: Electrical equipment, appliance, and component NAICS=335, SA IP: Transportation equipment NAICS=336, SA IP: Furniture and related product NAICS=337, SA IP: Miscellaneous NAICS=339, SA IP: Food NAICS=311, SA IP: Beverage NAICS=3121, SA IP: Tobacco NAICS=3122, SA IP: Textile mills NAICS=313, SA IP: Textile product mills NAICS=314, SA IP: Apparel NAICS=315, SA IP: Leather and allied product NAICS=316, SA IP: Paper NAICS=322, SA IP: Printing and related support activities NAICS=323, SA IP: Petroleum and coal products NAICS=324, SA IP: Chemical NAICS=325, SA IP: Plastics and rubber products NAICS=326, SA IP: Oil and gas extraction NAICS=211, SA IP: Mining (except oil and gas) NAICS=212, SA IP: Support activities for mining NAICS=213, SA IP: Electric power generation, transmission and distribution NAICS=2211, SA IP: Natural gas distribution NAICS=2212, SA 10/15/

28 Manufacturing Mining Utilities Durable NonDurable IP: Markets IP: Wood product NAICS=321, SA IP: Nonmetallic mineral product NAICS=327, SA IP: Primary metal NAICS=331, SA IP: Fabricated metal product NAICS=332, SA IP: Machinery NAICS=333, SA IP: Computer and electronic product NAICS=334, SA IP: Electrical equipment, appliance, and component NAICS=335, SA IP: Transportation equipment NAICS=336, SA IP: Furniture and related product NAICS=337, SA IP: Miscellaneous NAICS=339, SA IP: Food NAICS=311, SA IP: Beverage NAICS=3121, SA IP: Tobacco NAICS=3122, SA IP: Textile mills NAICS=313, SA IP: Textile product mills NAICS=314, SA IP: Apparel NAICS=315, SA IP: Leather and allied product NAICS=316, SA IP: Paper NAICS=322, SA IP: Printing and related support activities NAICS=323, SA IP: Petroleum and coal products NAICS=324, SA IP: Chemical NAICS=325, SA IP: Plastics and rubber products NAICS=326, SA IP: Oil and gas extraction NAICS=211, SA IP: Mining (except oil and gas) NAICS=212, SA IP: Support activities for mining NAICS=213, SA Consumer Goods Durables IP: Electric power generation, transmission and distribution NAICS=2211, SA IP: Natural gas distribution NAICS=2212, SA 10/15/

29 Equipment NonDurables IP: Automotive products, SA IP: Autos and trucks, consumer, SA IP: Auto parts and allied goods, SA IP: Other durable goods, SA IP: Computers, video and audio equipment, SA IP: Appliances, furniture, and carpeting, SA IP: Miscellaneous durable goods, SA IP: Foods and tobacco, SA IP: Clothing, SA IP: Chemical products, SA IP: Paper products, SA IP: Miscellaneous nondurable goods, SA IP: Consumer energy products, SA IP: Fuels, SA IP: Residential utilities, SA IP: Transit equipment, SA IP: Information processing and related equipment, SA IP: Industrial and other equipment, SA IP: Industrial equipment, SA IP: Other equipment, SA IP: Oil and gas well drilling and manufactured homes, SA IP: Defense and space equipment, SA Materials Durable Goods IP: Consumer parts, SA IP: Equipment parts, SA IP: Computer and other board assemblies and parts, SA IP: Semiconductors, printed circuit boards, and other, SA IP: Other equipment parts, SA IP: Other durable materials, SA IP: Basic metals, SA IP: Miscellaneous durable materials, SA NonDurable Goods IP: Textile materials, SA IP: Paper materials, SA 10/15/

30 NonIndustrial Supplies Energy IP: Chemical materials, SA IP: Other nondurable materials, SA IP: Containers, SA IP: Miscellaneous nondurable materials, SA IP: Primary energy, SA IP: Converted fuel, SA IP: Construction supplies, SA IP: Business supplies, SA IP: General business supplies, SA IP: Commercial energy products, SA 10/15/

31 Mining and Logging Construction Employment Dissagregated Logging Oil and gas extraction Mining except oil and gas Support activities for mining Construction of Buildings Heavy and civil engineering construction Specialty trade contractors Manufacturing Durables Wood Products Nonmetallic mineral products Primary Metals Fabricated metal products Machinery Computer and electronic products Electrical equipment and appliances Transportation equipment Furniture and related products Miscellaneous manufacturing NonDurables Food Manufacturing Beverages and tobacco products Textile Mills Textile Product Mills Apparel Leather and allied products Paper and paper products Printing and related support activities Petroleum and coal products Chemicals Plastics and Rubber Products Wholesale Trade 10/15/

32 Retail Trade Transportation and warehousing Utilities Informatio Durable Goods NonDurable Goods Electronic markets and agents and brokers Motor vehicle and parts dealers Furniture and home furnishings stores Electronics and appliance stores Building material and garden supply stores Food and beverage stores Health and personal care stores Gasoline stations Clothing and clothing accessories stores Sporting goods, hobby, boo, and music stores General merchandise stores Miscellaneous store retailers Nonstore retailers Air transportation Rail transportation Water transportation Truck transportation Transit and ground passenger transportation Pipeline transportation Scenic and sightseeing transportation Support activities for transportation Couriers and messengers Warehousing and storage Utilities Publishing industries Motion picture and sound recording industries 10/15/

33 Financial Activities Professional and Business Services Educationand Health Services Leisure and Hospitality Government Broadcasting except internet Telecommuincations Data Processing, hosting and related activities Other Information Services Monetary authorities - central bank Credit intermediation and related activities Securities, Commidities, Investments Insurance carriers and related activities Funds, Trusts, and other Financial Vehicles Real Estate Rental and Leasing Services Lessors of nonfinancial intangible assets Professional and technical services Management of companies and enterprises Administrative and waste services Education Services Health Care Social Assistance Arts/Entertaiment/Recreation Accomodation Food services and drinking places Other services Federal State local 10/15/

34 Manufacturing Employment Major Subaggregates Durables NonDurables Services Construction Education and Health Financial Activities Services Government Information Leisure and Hospitality Services Trade Nat. Resources and Mining Professional and Bus Services Other Services Retail Trade Wholesale Trans/Utilities (USTPU-USTRADE-USWTRADE) 10/15/

35 Manufacturing Merchant wholesale Manufacturing and Trade Sales: SIC Durable goods Nondurable goods Durable goods Nondurable goods Lumber and wood products Furniture and fixtures Stone, clay, and glass products Primary metals Fabricated metals Industrial machinery Electronic machinery Transportation equipment Instruments Other manufacturing Food and kindred products Tobacco products Textile mill products Apparel products Paper and allied products Printing and publishing Chemical and allied products Petroleum products Rubber and plastic products Leather and leather products Motor vehicles Furniture and furnishings Lumber and construction Professional and commercial Metals and minerals Electrical goods Hardware and plumbing Machinery, equipment, and supplies Other durable goods 10/15/

36 Retail trade Durable goods Nondurable goods Paper products Drugs and sundries Apparel and piece goods Groceries Farm products Chemical and allied products Petroleum products Alcoholic beverages Other nondurable goods Automotives Lumber and building stores Furniture and furnishings Other durable goods Food stores Apparel stores Department stores Other general merchandise stores 10/15/

37 Manufacturing industries Merchant wholesale industries Manufacturing and Trade Sales: NAICS Durable goods manufacturing industries Nondurable goods manufacturing industries Durable goods merchant wholesale industries Wood product manufacturing Nonmetallic mineral product manufacturing Primary metal manufacturing Fabricated metal product manufacturing Machinery manufacturing Computer and electronic product manufacturing Electrical equipment, appliance, and component manufacturing Transportation equipment manufacturing Furniture and related product manufacturing Miscellaneous durable goods manufacturing Food manufacturing Beverage and tobacco product manufacturing Textile mills Textile product mills Apparel manufacturing Leather and allied product manufacturing Paper manufacturing Printing and related support activities Petroleum and coal product manufacturing Chemical manufacturing Plastics and rubber product manufacturing Motor vehicles, parts, and supplies wholesalers Furniture and home furnishings wholesalers Lumber and other construction materials wholesalers Professional and commercial equipment wholesalers Metal and mineral (except petroleum) wholesalers Electrical goods wholesalers Hardware and plumbing and heating equipment 10/15/

38 Retail trade industries Nondurable goods merchant wholesale industries wholesalers Machinery, equipment, and supplies wholesalers Miscellaneous durable goods wholesalers Paper and paper products wholesalers Drugs and druggists' sundries wholesalers Apparel, piece goods, and notions wholesalers Grocery and related products wholesalers Farm product raw material wholesalers Chemical and allied products wholesalers Petroleum and petroleum products wholesalers Beer, wine, and distilled alcoholic beverages wholesalers Miscellaneous nondurable goods wholesalers Motor vehicle and parts dealers Furniture, furnishings, electronics, and appliance stores Building material and garden equipment and supplies dealers Food and beverage stores Clothing and clothing accessories stores General merchandise stores Other retail stores 10/15/

39 Wages and Salaries Prop. Income Personal Income Manufacturing(SIC) Distributive industries (SIC) Service Industries (SIC) Manufacturing (NAICS) Trade, transportation, and utilities (NAICS) Other services-producing industries (NAICS) Government Supplements to wages and salaries Farm NonFarm Personal income receipts on assets Rental Income Interest Dividend Personal current taxes 10/15/

40 Number of Dissagregated Series by Category 10/15/

41 A first look at the dissaggregated data 10/15/

42 Data: Adjusted for outliers, standardized growth rates (red = negative growth) /15/

43 Temperature plot, Sharpened /15/

44 Results from two episodes: 1969:12 peak 2009:6 Trough 10/15/

45 Average-the-date Monthly GDP Blue TCB Index of Coincident Indicators Red 10/15/

46 Date-then-Average N = 72 series with TP in this episode Mean: 2.22 (0.66 ) Median: 2.00 (0.61 ) Mode: 2.33 (0.43 ) 10/15/

47 Average-then-date Monthly GDP Blue TCB Index of Coincident Indicators Red :6 Trough Lag 10/15/

48 2009:6 Trough Lag N = 170 series with TP in this episode Mean: 1.66 (0.34 ) Median: 1.00 (0.49 ) Mode: 0.14 (0.09 ) 10/15/

49 Comparison of ATD, DTA, and NBER Avg-then-Date Date-then-Avg GDP TCB CI Mode 1960:4 P (0.4) 1961:2 T (0.2) 1969:12 P (5.9) 1970:11 T (2.7) 1973:11 P (1.0) 1975:3 T (0.8) 1980:1 P (0.2) 1980:7 T (0.2) 1981:7 P (4.4) 1982:11 T (0.9) 1990:7 P (0.2) 1991:3 T (2.0) 2001:3 P (4.4) 2001:11 T (0.9) 2007:12 P (1.1) 2009:6 T (0.2) Mean Mean AD /15/

50 Conclusions 1. Method for dating business cycle turning points in the U.S. has evolved from Date-the-Average to Average-the-Date. 2. Implementation of Date-then-Average using 270 real indicators suggests no systematic differences with NBER dates in the pre-1959 period. 3. Some particular dates (e.g., 1969:12) should be studied more carefully and potentially revised. 10/15/