Flash estimates of the LCI using General to Specific Modelling (GETS)

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Presentation transcript:

Flash estimates of the LCI using General to Specific Modelling (GETS) Graeme Chamberlin Office for National Statistics graeme.chamberlin@ons.gov.uk

PCGets (Hendry and Krolzig-2001) Automatic general to specific modelling Reduces high search costs of GETS Multiple path searches & encompassing tests Start with a General Unrestricted Model (GUM) Degrees of freedom Colinearity Judgments are required concerning Indicator selection Data transformation

EZ-15: wage and non-wage components of the LCI

EU-28: wage and non-wage components of the LCI

Economic determinants of LCI Wage bargaining models - Prices (expectations) - Unemployment/employment - Capacity utilisation - Productivity - Competition - Wage dynamics

Possible Indicators: Hard data Prices data GDP deflator Consumption deflator Import price deflator HICP Output and employment data GVA/Employment (productivity) Unemployment Wages data Compensation of employees (NA) Wages and salaries (NA) Earnings- manufacturing/industry (OECD MEI) Earnings- private sector (OECD MEI) Earnings- all activities (OECD MEI)

Possible indicators: Soft data Industry Employment expectations- months ahead Production expectations- months ahead Selling prices expectations- months ahead Productive capacity Capacity utilisation Domestic competition EU competition External (outside EU) competition Labour shortage limiting production Construction Price expectations- months ahead

Possible indicators: Soft data Retail Employment- recent months Consumer Price trends- last 12 months Price trends- next 12 months Unemployment expectations- next 12 months Services Employment- next months

EZ-15: Full sample (1997q2-2008q2) Model Indicators MSE Baseline Constant Labour Cost Index (-1) 0.0143 Hard GDP deflator (-2) 0.0139 Soft Labour Cost Index (-3) Industry Productive Capacity Construction Employment- next months (-1) Services Employment- next months (-1) 0.0069

EU-28: Full sample (1997q2-2008q2) Model Indicators MSE Baseline Labour Cost Index (-2), (-3), (-4) Dummy 1998q1 0.0262 Hard Labour Cost Index (-2) Manufacturing earnings- EU (-3) 0.0231 Soft Constant Labour Cost Index (-1), (-3), (-4) Industry competition domestic Industry prices- next months (-1) Industry labour shortage 0.0089

EZ-15: One step ahead forecasts (2003q2-2008q2)

EU-28: One step ahead forecasts (2003q2-2008q2)

Mean squared forecast errors (2003q2-2008q2) Model Baseline Hard data Soft data EZ-15 0.0127 0.0199 0.0117 EU-27 0.0332 0.0269

Summary remarks Hard data indicators do not unequivocally improve flash estimates over the baseline models. Soft data indicators do appear useful for the EU-28 flash estimates but not the EZ-15. But.. The use of soft data is not universally accepted and models based on it tend to be less stable. Simple models… ARDL or ARIMA seem to the most appropriate for flash estimates of the LCI.