Macroeconomic Data Research Paper

Macroeconomic data are used by businesses, the government, financial markets, the press, and the general public to monitor, and assess, changes taking place within economy. They are also used for purposes of economic analysis and econometric modeling and forecasting. They provide the information needed for purposes macroeconomic policy-making and decision taking by governments and central banks. The collection, processing, and publication of macroeconomic data are usually carried out by national statistical offices and other government agencies. In many countries, the central bank is responsible for the collection and publication of a wide range of macroeconomic data, especially financial statistics and balance of payments statistics, and sometimes also the national accounts.

Many flows such as income and consumption can be defined in different ways so that their values depend on the particular definitions and conventions adopted by those responsible for their collection and publication. As the various economic activities taking place within an economy are interdependent, the associated macroeconomic data are also interdependent. It is therefore desirable that individual macroeconomic variables should be defined and measured consistently with each other within an overall statistical framework that uses the same economic concepts, definitions, and classifications throughout.

Macroeconomic data are inevitably subject to error. Complete information is seldom available on all the units concerned. Most macroeconomic data are not based on censuses or surveys specifically designed for the purpose. Many are essentially estimates derived from data collected for other reasons, such as administrative or tax data. One of the arts of the statisticians responsible is trying to reconcile inconsistencies between data drawn from different sources. The appearance of data from a new source may lead to considerable revisions in previously published statistics.

As one of the main uses of macroeconomic data is to provide up-to-date information for economic forecasting and economic policy-making and decision taking by governments and others, there is considerable pressure from users to obtain the data as quickly as possible. There is a trade-off, however, between timeliness and reliability when the underlying basic data only become available gradually over a period of time. First estimates based on incomplete data can only be provisional. The earlier they are made and released, the greater the risk that they may have to be substantially revised later when more data become available. Revisions may be acceptable to users as the price to be paid for timely data, but occasionally they may be a major source of embarrassment to the government agencies responsible.

1. The Main Macroeconomic Aggregates

1.1 GDP and Gross Value Added

The objective is to measure the output produced by all the economic units resident in a country. Measuring the output of a single enterprise is straightforward, but aggregating the outputs of different enterprises raises a further complication. From the point of view of the economy as a whole, not all outputs are final because some of the outputs produced by some enterprises may be sold to other enterprises to be used up again as inputs into further production. These products are ‘intermediate,’ not final. They are not available for consumption by households or governments, for augmenting the capital stock, or for export. In order to measure the contribution of each enterprise to the economy’s final output it is necessary to deduct from the value of its own output the value of the intermediate products it consumes. The difference is described as ‘gross value added.’

Value added can be measured either before or after deducting the depreciation on the capital goods used in production. If before, it is described as ‘gross,’ if after, it is ‘net.’ Gross Domestic Product, or GDP, is defined simply as the sum of the gross values added of all the enterprises resident in an economy. GDP is probably the most important single macroeconomic aggregate, being widely used throughout the world as a key indicator of the level of economic activity. It is measured quarterly as well as annually, its movements being factored into their price and quantity components. The price movements measure inflation while the quantity movements are used to measure rate of real economic growth and cyclical fluctuations in the economy.

1.2 From GDP to National Income

The link between aggregate measures of production and income is established by the fact that the incomes generated by production are all paid out of value added. As operating profits are the residual amount remaining after all the other incomes have been paid, the sum of all the incomes generated by production, including operating profits, must be identical with value added. At the level of the economy, the sum of the incomes generated by production is described as Gross Domestic Income, or GDI, which is equal in value with Gross Domestic Product by definition.

Gross National Income, or GNI, is derived from GDI by adding the incomes received by residents from foreigners and deducting the incomes paid to foreigners. (Unfortunately, GNI has traditionally been described as Gross National Product, or GNP, although it is an income rather than a production concept.) Net National Income is obtained by deducting depreciation from GNI. It is often described simply as National Income.

The numerical identity between GDP and GDI means that they can be estimated from two quite different sets of data, namely income or production data. Because income data are often incomplete and unreliable, most countries place more reliance on GDP measured from the production side using data on inputs and outputs collected in industrial inquiries. There is also a third approach that uses expenditures on final outputs, namely household and government consumption, capital formation, and exports less imports. Estimates from the production, income, and expenditure sides provide checks on each other. In practice, there are usually significant statistical discrepancies between them that may be reduced by adjusting the data, but many countries find it impossible to eliminate statistical discrepancies altogether and are obliged to publish them.

2. From National Income to Economic Accounting

Defining and measuring a few aggregates at the level of the economy as a whole is only one small part of macroeconomic measurement. Macroeconomic analysis and policy making requires sets of data covering many economic variables and activities measured at various levels of aggregation.

The development of comprehensive macroeconomic data systems dates back to the 1930s and 1940s. It was stimulated by two factors, the economic depression and the Second World War. The depression and the switch from peacetime to wartime production both led to more active economic policy making and intervention than previously, but such policies also require more information. The relevant macroeconomic theory and models were also being developed at around the same time.

The macroeconomic data systems came to be known first as national accounts and later as economic accounts. The publication of official estimates of national income aggregates for the USA started in the 1930s, but it was not until the Second World War that proper accounts began to be published. In the UK, the first set of official national accounts was compiled in 1941 by Meade and Stone at the request of Keynes. Towards the end of the war, very close links were established between the experts in the UK and the USA, which led to the development of the international systems described below. The development of these systems was a collective achievement by a number of economists from Europe and North America, but pride of place is generally given to Richard Stone who was awarded the 1984 Nobel Prize in economics for his work in this field. Stone took the leading role in elaborating the international systems published under the auspices of the Organization for European Economic Cooperation, or OEEC (later the OECD), and the United Nations.

Stone focused on transactions between economic units as the elementary items from which macroeconomic data systems have to be constructed. Transactions can take very many forms. For example, the ownership of some goods or assets may be exchanged between A and B, or some service be provided by A to B, accompanied by a counterpart flow, usually of a financial nature, such as the payment of money by B to A. The objective of economic accounting is to organize, classify, and aggregate the countless transactions taking place within an economy in a way that is informative and useful for purposes of economic analysis and policy making. The challenge that this presents is very different from deciding how to define National Income. Stone observed that transactions could be classified according to the type of economic units involved, the type of economic activity with which the transaction is associated, and the nature of the items exchanged. By cross classifying with respect to these kinds of criteria, quite elaborate data systems can be constructed.

In 1953, the United Nations published its ‘System of National Accounts and Supporting Tables,’ or SNA, intended for use by all countries in the world except the Soviet Union and other Socialist countries who preferred their own Marxian version referred to later. At the same time, the International Monetary Fund, or IMF, was developing closely related international standards covering Balance of Payments Statistics, Financial Statistics, and Government Statistics. Two major revisions and extensions of the UN SNA were published in 1968 and 1993. The revision completed in 1993 was conducted jointly by all the major international economic agencies—UN, IMF, World Bank, the Organization for Economic Cooperation and Development (OECD), and the European Union (EU). The 1993 version of the SNA is the system now used by almost all countries in the world as the norm or standard for their own accounts, including former Socialist countries who abandoned their Marxian system at the time the 1993 SNA was being finalized.

3. The International System of Macroeconomic Accounts, or SNA

The first paragraph of the 1993 edition of the SNA reads as follows: ‘The System of National Accounts (SNA) consists of coherent, consistent and integrated set of macroeconomic accounts, balance sheets and tables based on a set of internationally agreed concepts, definitions, classifications, and accounting rules. It provides a comprehensive accounting framework within which economic data can be compiled and presented for purposes of economic analysis, decision taking, and policy-making. The accounts themselves present in a condensed way a great mass of detailed information, organized according to economic principles and perceptions, about the working of an economy. They provide a comprehensive and detailed record of the complex economic activities taking place within an economy and of the interactions between different economic agents and groups of agents, that take place on markets and elsewhere.’

3.1 The Structure of the SNA

The accounts may be compiled at any level of aggregation. The SNA divides the economy into a small number of sectors, such as the household, government, and financial sectors, which may in turn be divided into subsectors. While it is appropriate to describe the accounts for the total economy as ‘national accounts’ this description is not appropriate for the accounts of individual sectors. For this reason, the general expression ‘economic accounts’ is preferred.

The economic units resident in the rest of the world can also be viewed as a sector. However, an individual country cannot compile sets of accounts for the rest of the world. Instead, it merely records transactions between resident and nonresident units in a special account, a ‘rest of the world account.’ This account is essentially the same as a Balance of Payments Account, which can thus be seen to be an integral part of the overall system of economic accounts.

3.2 The Sequence of Accounts

Each account in the SNA relates to a particular kind of economic activity, such as production or consumption. The entries in the accounts consist of the aggregate values of particular kinds of transactions conducted by the units engaged in those activities. For example, a production account records the purchases of inputs and sales of outputs which producers make as a result of engaging in production. The accounts do not record the activities in a physical or technical sense.

Each account has two columns headed ‘uses’ and ‘resources.’ As a general guideline, transactions are recorded under ‘resources’ if they increase the unit’s financial resources, for example sales of outputs, and under ‘uses’ if they reduce them, for example purchases of inputs. The counterpart changes in money or other financial assets are recorded in the financial account. The production, consumption, and capital accounts record real economic activities in the economy while the financial account deals with the financing of those activities and also transactions of a purely financial nature.

The purpose of compiling economic accounts is not to have tidy book keeping. By comparing the total values of the ‘uses’ and ‘resources’ in an account, the outcome of the associated activity can be evaluated from an economic point of view. The differences between the two totals are described as ‘balancing items.’ Value added, profits, disposable income, and saving are examples of balancing items that can only be measured within an accounting framework. These balancing items are typically the most interesting and important items within the accounts as they encapsulate a great deal of information about the activities in question. Indeed, the most important single reason for compiling economic accounts is to derive the balancing items. GDP itself is a balancing item equal to the difference between the values of total output and total intermediate inputs in a highly simplified production account for the total economy. GDP is an accounting construct. It is not a flow that can be observed directly.

The accounts following the production account of the SNA portray the distribution of the incomes generated by production and their subsequent redistribution by government through taxation and social insurance. They are followed by an account showing expenditures on consumption out of disposable income whose balancing item is saving. The remaining accounts of the SNA consist of the capital account and a financial account. Detailed financial accounts that track the flows of funds between different sectors and subsectors are an integral part of the SNA, specimen flow of funds accounts being given in the 1993 SNA. Finally, the SNA also includes balance sheets in which the values of the assets owned by the various sectors are recorded together with their liabilities.

A brief sketch of the SNA has been given in the above paragraphs. It is a complex sophisticated system. The SNA provides a conceptual framework within which macroeconomic data relating to a very wide range of economic activities can be recorded. It imposes a single set of economic concepts, definitions, classifications, and accounting rules throughout so that all the diverse activities are recorded in a mutually consistent way. Both national and international statistical agencies have long recognized the importance of imposing this kind of discipline so that users have macroeconomic data that are mutually consistent conceptually. It also helps to ensure that they are consistent numerically.

4. Socialist Economic Accounting

National Income has a long history. Income has not always been clearly distinguished from wealth. Income is a flow that can only be measured over a period of time, such as a week, month, or year, whereas wealth refers to the value of a stock of assets that can be measured at a point of time. Attempts to estimate the Nation’s Income go back over three centuries to the work of William Petty (1662). However, he was more concerned with measuring the wealth of the nation and taxable capacity than income. The same preoccupation with wealth rather than income is found a century later in Adam Smith’s The Wealth of Nations (1950).

The extent to which macroeconomic data can be influenced by ideas, concepts, and definitions is vividly illustrated by the distinction that Smith introduced between ‘productive’ and ‘unproductive’ labor. Smith argued that only workers who produced goods, as distinct from services, should be regarded as productive because only goods could add to the stock of the nation’s productive capital equipment. This distinction was followed by many classical economists in the early nineteenth century, including Karl Marx in Das Kapital (1867). One far reaching consequence was that it was built into the Marxian based system of national accounting adopted by the former Soviet Union and subsequently by other centrally planned socialist countries. In the international version of that system developed after the second world war under the auspices of the United Nations it is stated that: ‘All fields of productive activity are based on material production, which is primary in comparison with the activities rendering services. The global product and national income are produced in the material sphere … The wealthier a community is, the more material goods it produces … The non-material sphere creates neither product nor income’ (Basic Principles of the System of Balances of the National Economy, United Nations, Statistical Office 1971). This makes strange reading when about two thirds of the GDP of most developed countries consists of the production of services. This system of accounting was not abandoned by the countries concerned until the early 1990s.

5. Household Production and GDP

The treatment of household production in GDP is a contentious, almost a political, issue. As GDP is a measure of the aggregate value added created by production, it might be presumed to be a reasonably objective statistic. However, there are two kinds of production: production whose output is destined for the market and nonmarket production whose output is not. The output from nonmarket production is consumed by the same units that produce it. GDP consists mainly, but not entirely, of the value added created by market production. Its absolute size depends on how much nonmarket production is included, this being very much a matter of convention.

In order for any activity to count as productive in an economic sense, the output to be marketable so that the production can be organized on a market basis. Many of the activities undertaken within households satisfy this basic criterion but the outputs are not actually offered on the market being retained for consumption within the household. For example, households may grow their own food or other agricultural products. In poor countries, a large part of the total production and consumption not only of food but other basic products may consist of nonmarket production for their own consumption.

GDP covers all market production (even if it is illegal) and the SNA keeps track of all the associated income and consumption flows, which are usually monetary. By convention, it has also been agreed that GDP should include the production of any goods produced for own consumption. These include the produce of gardens and other small plots cultivated by households in developed countries and not only the output of subsistence agriculture.

In most countries, however, most of the production for own consumption within households consists of services such as cooking, cleaning, and childcare. By convention, this service production is excluded from GDP (even though the production of housing services for own consumption by owner-occupiers is included). As most of these household services may be produced by women, this exclusion has been criticized on the grounds that the real contribution of women to the economy’s production is thereby grossly underestimated. Using the broad criterion of economic production given above, this criticism is valid, as all the household services concerned can be produced on a market basis by paid servants, nurses, teachers, chauffeurs, hairdressers, etc. Unofficial estimates suggest that the unrecorded production of household service for own consumption could equal a half to two thirds of GDP as conventionally defined. If the definition of GDP were changed to include this production, GDP would rise dramatically.

On the other hand, there are some users and economists who would prefer GDP to move the other way by omitting all production for own consumption completely and confining GDP strictly to output from market activities. One reason is the practical difficulty of estimating the quantity of such output and valuing it in an economically meaningful way. The value of the production of household services is speculative and can vary greatly according to the assumptions made about how to value it. A more fundamental reason is that market and nonmarket productions do not have the same economic significance. When goods or services are produced for the market, there may be disequilibria in the form of excess supply or demand precisely because the suppliers and consumers are different economic units. National accounts were developed to provide aggregate macroeconomic data relating to market activities for purposes of fiscal and monetary policy that are mainly concerned with phenomena such as unemployment or inflation that are symptoms of market disequilibria. Some users would therefore prefer accounts based only on market transactions. To move the other way by including large imputed non-monetary flows attributable to nonmarket production within households would greatly reduce the analytical usefulness and policy relevance of the accounts for most users.

The present concept of GDP is a somewhat uneasy compromise resulting from the desire to have a single multipurpose measure of GDP satisfying the demands of different users. Alternatively, it would be possible to define a hierarchy of different GDP’s ranging from a strictly market based concept to one that included every kind of own account production, but the existence of alternative GDP numbers might simply create confusion.

6. Some Specialized Macroeconomic Data Systems

There are several specialized macroeconomic data systems that focus on particular sectors or types of economic activity: for example, balance of payments statistics, flow of funds statistics, input-output tables, labor force statistics, and capital stock statistics. Although these systems may have originally developed independently of each other and the SNA, a common set of concepts and classifications is needed when data from different systems have to be used together.

6.1 Labor Force Statistics

As labor force statistics concern people, it might be presumed that the links with the SNA would be tenuous. However, the concept of the labor force, as specified in the international standards published by International Labor Organization, relies directly on the production boundary used in the SNA. The main conceptual problem is to determine which members of a household are economically active. This is essentially the same issue as that considered in the previous section, as only those members of a household who are engaged in activity that falls within the production boundary of the SNA are treated as being members of the labor force. The size of the labor force, as well as GDP, depends on the conventions adopted with regard to the production boundary. Persons engaged in the production of services for own consumption within the household do not form part of the labor force, whereas those engaged in the own-account production of goods are included. The latter are treated self-employed while the former are not. The concept of employment, which is linked to that of the labor force, clearly refers to persons who receive some kind of remuneration for working in the market sector that generates most of GDP.

6.2 Balance of Payments Statistics

Balance of payments statistics record all flows of goods and services, income and capital between an economy and the rest of the world. International standards for balance of payments statistics are set by the International Monetary Fund, or IMF, in its Balance of Payments Manual, the fifth edition of which was produced in 1995. It is intended to be fully consistent with 1993 SNA.

The balance of payments is single comprehensive account that records all the transactions between the economic units resident in a country and units resident in the rest of the world. It is essentially the same as the rest of the world account in SNA. The balance of payments is divided into four subaccounts. First, a distinction is drawn between current transactions and those relating to assets. This matches the distinction between the current and the accumulation accounts in the SNA. The current account of the balance of payments is then subdivided to distinguish trade flows from income flows. The accumulation account is subdivided to distinguish transactions in nonfinancial assets from those in financial assets.

Keeping track of transactions between resident and nonresident units poses special problems. Many of the concepts and definitions in the SNA need further precision and refinement in a balance of payments context. Even the concept of residence is becoming increasingly blurred because of increased mobility due to fast air transport and instant international communications through the Internet. The concept of an export or import is also not straightforward when goods are transported through third countries en route to their final destination or are shipped abroad temporarily for processing.

Trade flows may be expected to be among the more reliable items recorded in balance of payments statistics. It is possible to have a check on them because exports from A to B as recorded by A should equal imports by B from A as recorded by B provided they are consistently valued. There are many examples, however, to show that there may be serious inconsistencies between the two sets of data, even for neighboring countries such as the USA and Canada. These difficulties are compounded if there is a lot of smuggling. The difficulties of keeping track of financial transactions can be considerably greater with the emergence of world financial markets on which financial assets are traded continuously and instantaneously as a result of modern communications technology.

As in the SNA, the entries in the balance of payments that are usually of the greatest policy interest are balancing items obtained residually, such as the balance on the current account or net lending. In general, however, balancing items are also the most sensitive to error. In principle, the current account balances of all the countries in the world should cancel each other out. One country’s deficit is another’s surplus. However, when the balance of payments statistics of all the counties in the world are confronted with each other their balances do not cancel and a world current account discrepancy emerges. The IMF has conducted investigations into the factors responsible in order to try to reduce the size of the discrepancy.

Although the concepts and classifications in balance of payments are essentially the same as in the SNA, a special manual is needed in the light of the special problems outlined above. It is necessary not only to provide greater precision in certain areas, but also to provide practical operational advice about how besttoimprove thequality andreliability ofthestatistics. The IMF has provided technical assistance and training to balance of payments compilers throughout the world over many years.

6.3 Capital Stock and Wealth Data

The aggregate values of a sector’s assets and liabilities at the start and end of the accounting period are recorded in the SNA’s balance sheets. Total assets less liabilities equal ‘net worth,’ which is equivalent to ‘wealth’ in ordinary parlance.

Even though complete information about assets and liabilities is rare at a macroeconomic level, data are often available on holdings of financial assets and on stocks of fixed assets in the form of machinery, equipment, buildings, and other structures. Stocks of fixed assets are often described simply as the ‘capital stock.’ Estimates of their value are needed for purposes of productivity analysis.

The value of a fixed asset at a point of time is equal to the present, or capitalized, value of the flow of capital services into production that it is capable of providing over the rest of its service life. Capital stock and the flow measures are therefore completely interdependent. Depreciation is measured by the decline, between the start and the end of the accounting period, in the present value of a fixed asset used in production.

Capital stock estimates are usually made using the perpetual inventory method, or PIM, which derives the stock estimate from past data on investment flows, or gross fixed capital formation in SNA terminology. If the average life of an asset is estimated to be n years, the investments in the asset over the last n years, revalued at current prices, are cumulated to provide an estimate of the ‘gross capital stock.’ The cumulative depreciation on each vintage of asset is then deducted to obtain an estimate of the ‘net capital stock.’ Capital stock estimates derived in this way are available for many countries.

In empirical work on productivity, it is important to note that the input into production is not the capital stock itself but the flow of capital services provided by that stock. Their value is given by depreciation plus the return on the asset. It is possible to estimate volume indexes for flows of capital services for purposes of productivity analysis.

Bibliography:

1. Inter-Secretariat Working Group on National Accounts 1993 System of National Accounts 1993. Commission of the European Communities, Brussels Luxembourg
2. International Monetary Fund 1993 Balance of Payments Manual, 5th edn. International Monetary Fund, Washington, DC
3. Petty W 1662 A Treatise of Taxes and Contributions. O. Blagrave, London
4. Smith A 1950 An Inquiry into the Nature and Causes of the Wealth of Nations. W. Strathan, London
5. United Nations Statistical Office 1971 Basic Principles of the System of Balances of the National Economy. United Nations, New York