Seasonal adjustmentof chain-linked volume

measuresin Quarterly National

Accounts:Findings of a European Task

ForceMartin EiglspergerEuropean Central Bank – DG Statistics*

The 2008 World Congress on National Accounts and Economic Performance Measures for Nations

Washington D.C., 12-17 May 2008* The views expressed in this presentation are those of the authorand do not necessarily reflect the views of the European Central Bank.

Annual chain-linking of Quarterly National Accounts (QNA) volume measures

• By almost all statistical offices in the EU since 2005

• Implementation not fully harmonised across EU countries

• 2007: European Task Force, chaired by Eurostat and the ECB; 19 EU countries participated→ impact of chain-linking techniques and relevance for seasonal adjustment

• Detailed investigations by Robert Kirchner, Ingo Kuhnert, Sven Öhlén and Marcus Scheiblecker

Background1

Three approaches to the annual chain-linking of Laspeyres volume indices in average prices of the previous year:

• Annual overlap technique: links refer to the volumes of the previous year at average prices of the year

• One-quarter overlap technique: links refer to the volumes of the fourth quarter in the previous year at average prices of the year

• Over-the-year technique: links refer to the volumes of the same quarter in the previous year at average prices of the year

Chain-linking techniques (1)2

Use of chain-linking techniques in EU countries:

• Annual overlap technique: most EU countries

• One-quarter overlap technique: Austria and the United Kingdom

• Over-the-year technique: Used in the Netherlands and Sweden; change-over to the annual overlap technique planned / (partly) realised

Chain-linking techniques (2)3

• Annual overlap technique:Year-on-year growth rates do not reflect pure volume changes, quarter-on-quarter rates do within the same calendar year

• One-quarter overlap technique:Quarter-on-quarter growth rates reflect pure volume changes

• Over-the-year technique:Year-on-year growth rates reflect pure volume changes

Effect on growth rates4

• Annual overlap technique:Annually chain-linked QNA and chain-linked Annual National Accounts (ANA) are consistent over time

• One-quarter overlap technique:Annually chain-linked QNA and chain-linked ANA are not consistent over time → benchmarking

• Over-the-year technique:Annually chain-linked QNA and chain-linked ANA are not consistent over time, but deviations tend to be very small

Effect on time consistency5

Aggregation/disaggregation of unchained data

• Annual overlap technique:Nominal values of the previous year as weights → existing data

• One-quarter overlap technique:Volumes of the fourth quarter of the previous year at average prices of the year as weights → additionally required

• Over-the-year technique:Volumes of the respective quarter of the previous year at average prices of the year as weights → additionally required

Aggregation and disaggregation6

Chain-linked volume measures: Trend and weak substitution effect in the source data

Time series properties (1)7

105

110

115

120

125

130

135

140

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

fixed A base

AO

1QO

OtY

Source: Kuhnert, I. (2007), internal presentation to the Task Force

Chain-linked volume measures: Trend and strong substitution effect in the source data

Time series properties (2)8

100

105

110

115

120

125

130

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

f ixed A base

AO

1QO

OtY

moving Q base

Source: Kuhnert, I. (2007), internal presentation to the Task Force

• Time consistency:

– not present in seasonally adjusted data

– Task Force recommends benchmarking

• Aggregation and disaggregation:One-quarter-overlap and over-the-year technique require additional weights data, annual overlap-technique does not (after benchmarking)

• Additivity of s.a. data via “indirect” adjustment, i.e. aggregation of unchained s.a. data?→ consistency vs. quality of seasonal adjusted data might be an issue

Seasonally adjusted series9

• Chain-linking, seasonal adjustment, benchmarking

• Non-linearity of procedures: Order matters!

• Benchmarking as the last step in order to fulfil user requirements for time consistency

• Benchmarking can have a significant impact on the seasonal pattern (ARIMA-models, X-12 output)

• Seasonal adjustment after chain-linking

• Research by the Office for National Statistics (United Kingdom): “Drift” of one-quarter-overlap approach could be reduced by conducting s.a. first

Order of procedures10

• Over-the-year technique can have a substantial impact on the seasonal pattern → not recommended by the Task Force

• Annual overlap technique: Time-consistent data + no additional data requirements for aggregation!

• One-quarter-overlap technique: smooth transition, but does not produce time-consistent series → benchmarking is recommended

• Seasonally adjusted chain-linked series: benchmarking is recommended in order to produce time-consistent series

Summary (1)11

• Consistency in aggregation of seasonally adjusted data: “Indirect” adjustment by aggregating unchained data → consistency vs. quality of seasonal adjusted data might be an issue

• One-quarter-overlap approach:

– Seasonal adjustment before chain-linking?

– Benchmarking!

Summary (2)12