1. Replacing sample panels in the Index of Production with Ratio Estimates Gregor Boyd Office of the Chief Economic Adviser October 2008

2. Index of Production (IoP) IoP covers –Mining, quarrying, extraction of oil and gas –Manufacturing –Electricity, gas and water supply Production accounts for almost 18 per cent of Scotland’s GVA (2004 weights) Currently 151 series make up the IoP Panel estimation approach used where no volume data is available (two thirds of IoP by GVA proportion)

3. Index of Production

4. Panel Estimation Similar concept to FTSE100 For each series (SIC2003 industry grouping) track a panel of companies through time Change in turnover is used as a proxy for change in GVA Obtain turnover data from a survey (Monthly Production Inquiry MPI) performed by ONS The panel is quick and easy to understand

5. Problems with the Panel No survey data for companies on the panel… have to impute turnover Company on panel dies Large new company is born Companies merge/demerge Activity of small companies is hard to monitor Panel refreshes lead to revisions

6. Ratio Estimation Used for Index of Services and the Index of Manufactured Exports (IME) Will still use the MPI survey data Will make use of a secondary data source (the Inter-Departmental Business Register IDBR) The IDBR is used as the sample frame

7. Ratio Estimation For each industry (SIC2003 grouping) and strata (company size band): –Compare the survey turnover to the turnover of these companies on the IDBR –Apply the resultant ratio to the turnover of the population of companies for that industry and strata on the IDBR This ‘imprints’ seasonal fluctuations and growth characteristics onto the IDBR.

8. Example Series

9. One-sided Winsorisation An outlier detection and treatment method Outliers in survey data will affect the Grossed turnover Winsorisation does not modify a-typical values, but scales the effect that they have A threshold value is calculated for each industry and size band and any turnover greater than this is scaled An outlier weight is calculated and applied to the Grossed total

10. Impacts of Ratio Estimation There will be fewer series than before (approx 50) –The number of published series should be unaffected Producing the IoP will take longer Revisions to published indices and growth rates Currently have a basic Ratio Estimation system in place for dual running with the panel. Ratio Estimation approach is expected to be used for the IoP in a year’s time (Q2 2009?)

11. Discussion