1. Backcasting revised national accounts data United Nations Statistics Division AGNA meeting 12-15 May 2015, Addis Ababa, Ethiopia

2. Outline of presentation  The need for National Account time series  Considerations and constraints  Possible approaches  Proposed content of a Backcasting handbook

3. Main functions of the National Accounts  The National Accounts allow users to examine the structure of the economy and the evolution of the economy.  Users require a time-series of economic data in order to undertake : monetary and fiscal policy and monitoring; structural analysis (productivity, input-output or GE modelling); forecasting and business cycle analysis administrative uses; environment-economy linkages; and research uses. 3

4. How long is long enough?  The National Accounts (NA) record the macroeconomic history of a nation. The data along, with associated contextual and analytical information, is a national asset that needs to be both preserved and invested in.  The greater the coverage of an NA time series, the greater the benefit, since one of the uses is to compare recent events to similar economic developments of the past.  The greater the number of economic developments covered by the time series the greater the use to policy makers. 4

5. Why it should be done by the NSO  An argument can be made that backcasting should be left to the users—the NSO need only supply the metadata required to backcast the data.  This is countered (mainly by users) that: The NSO is in the best position to backcast the data given their intimate knowledge of the data and accounting rules. This would avoid multiple ‘official’ measures due to differences in approaches. NSO compilation lends credibility to the data. 5

6. Considerations and constraints  There are some important considerations and constraints national accountants face when backcasting National Account time series. These include : Time Human capacity Legislative / administrative uses of the data Coordination (e.g., integrated accounts, decentralized accounts) Availability of source data and quality of source data Significance of the changes to be backcasted  The approach taken in large part is determined by the above factors. 6

7. Considerations and constraints  In order to properly backcast data, the NA compiler needs to have an important understanding of the economic history of the country including : Business cycles Major economic events Structural Changes Changes in government policy Knowledge of government programmes Demographic trends Etc...  A lack of understanding in these areas could result in more damage than good. 7

8. Considerations and constraints  Revising an integrated set of accounts is an additional challenge in terms of : Project management Time constraints Quality assurance Scope  It is not realistic to backcast detailed supply-use tables given the source data and time constraints. At the same time there is a desire to preserve the integrated nature of the accounts—it may not always be possible to preserve the same level of integration when backcasting NA data. 8

9. Backcasting techniques There are many different ways to backcast NA data. Some possible approaches include : ▫ Linking ▫ Recompilation ▫ Estimation / modelling ▫ Metadata approach ▫ Most likely backcasting will involve a combination of the above techniques—the challenge is to understand when a particular approach is appropriate. 9

10. Requirments for a backcasting project  You need to be an economic historian  Information management is important  Saving for later is a bad idea : It is difficult to “get back to it’ Fatigue prevents it Key staff departures Memory fades...  Scale the project to available resources  Communicate 10

11. Outline of Handbook Chapter One: Overview of the Handbook 1.The need for backcasted data 1.Uses of National Accounts in time series context 2.Why NSOs should do the backcasting 2.The complexity of Update-type revisions 1.User relations 2.Credibility 3.Resource constraints (time, knowledge capital and financial) 3.Using the SNA-BPM as the structure for the Handbook 1.Outline of SNA-BPM 2.Application to Backcasting Project 4.Outline of Handbook

12. Outline of Handbook Chapter Two: Planning and Designing the Backcasting Project 1.Types of Revision projects 1.Big Bang (infrequent) 2.Regular updates (every five years – Economic Census frequency) 3.Strategic Revisions 2.Taxonomy of Revision Topics 1.Concepts and definitions 2.Scope (sequence of accounts) 3.Delineation of boundaries (production and capital) 4.Classification and sectorization 5.Basis of recording (valuation and timing) 6.Reliability of compilation methods and source data

13. Outline of Handbook Chapter Two: Planning and Designing the Backcasting Project 3.Setting Objectives for quality of revised data 1.Use of high level QAF 2.Use of DQAF 1.Source data quality, reasonableness and timeliness 2.Sound Compilation or Backcasting techniques 3.Sound validation techniques 3.Use of Revision Framework 1.Time frames 2.Quality Outcomes 4.Development of a detailed project plan

14. Outline of Handbook Chapter Three: Methodologies for backcasting 1.Re-compiling Accounts 1.Bottom-up estimation 2.Mapping 2.Time-series methods 1.Benchmarking new levels 2.Instrumental variables 3.Chow and Lin 4.Linking 3.Other Methods 1.Automated re-balancing 2.Constrained balancing 3.Residual estimation using balancing entries

15. Outline of Handbook Chapter Four: Execution of the Revision Project 1.Estimating Individual Revision Topics 1.Boundary Change (using example of R&D capitalization) 2.Classification change (adoption of COICOP) 3.Delineation of Sectors (NPISH, Financial and Non-financial corporations) 4.Change or adoption of Sequence of Accounts (Capital Account?) 5.Coherence improvement (Market valuation) 6.Methodology change (Financial services, insurance and pensions) 7.Source data change (Adoption of Integrated Business Surveys?) 8.Adoption of new index number formula (Fisher, Annual chain-linked laspeyres) 9.Others … 2.Pulling the Accounts together 1.Methodological approach to balancing entries 2.Identities and balance checking 3.Use of expected changes based on preliminary analysis 4.Iterative modifications

16. Outline of Handbook Chapter Five: Validation of Results 1.Using revision tolerances and expected ranges 1.News/Noise framework 2.Statistical discrepancies 2.Time series qualities verification 1.Revisions to business cycles 2.Revisions to growth patterns 3.Economic explanation of changes - By topic and for overall results, for example capitalization of R&D has effects on may accounts – but could also have cyclical effects due to R&D cycles, or market valuation has effects on many variables and adjusting entries – can have cyclical effects on wealth and net worth

17. Outline of Handbook Chapter Six: Publication of Results and evaluation 1.Preparing users for the change 1.Publication of proposed revision project, expected results, delivery dates 2.Release of working papers on individual revision issues 3.Release of new publication formats and access methods 4.Presentations to key stakeholders 2.Release of data and meta data 1.Providing support to users 3.Review of project and user Consultation

18. Comments – Questions?

19. Thank You SNA@un.org http://unstats.un.org/unsd/nationalaccount/default.asp 19