European Conference on Quality in Official Statistics, Q2010

1. European Conference on Quality in Official Statistics, Q2010 Helsinki, 4-6 May 2010 Eurostat – Unit D5 Key indicators for European policies

2. European Conference on Quality in Official Statistics, Q2010 Back-calculation of European aggregates: some general considerations ByGian Luigi Mazzi, Filippo Moauro, Rosa Ruggeri Cannata Helsinki, 4-6 May 2010 Eurostat – Unit D5 Key indicators for European policies

3. Outline • Background • Limits of the exercise • Outline of a Eurostat strategy • Main requirements of a Eurostat strategy • Characteristics of the developed methodology • Ongoing activities • An empirical example: the euro area IPI • Future actions • Conclusions Eurostat – Unit D5 Key indicators for European policies

4. Background (1) • Long time-series are requested by main users • Several reconstructed long series available • Relevant for macroeconomic studies, BC analysis • Impossible to maintain official long time-series: missing past values, revisions of definitions/classifications, ecc.. • Replication back into the past  for a short period only • A simpler way  use of statistical and econometric methods • PEEIs  one of Eurostat's priorities Eurostat – Unit D5 Key indicators for European policies

5. Background (2) • Rationalisation among practices is in line with the principle of the Commission "Communication on the production method of EU statistics: a vision for the next decade", aiming to define generic methods applicable across domains • Availability of long time-series for euro area and EU will represent for Eurostat a great contribution to the use of PEEIs. • It will increase the quality of flash-estimates and SA data • In the Eurostat quality framework, improvement of the coverage dimension • The definition of a plan will meet users' requirements • … raising Eurostat's visibility, credibility and reputation. Eurostat – Unit D5 Key indicators for European policies

6. Scope of the exercise • The exercise does not imply a micro-level back-calculation • Mainly targeted to main aggregates with a limited breakdown. • Its aim is not to change the past pattern of the series • … but to keep it unchanged (turning points, cyclical shape) • Preserve the historical characteristics of the series • We don’t want to "rewrite" the history • This exercise  homogenisation of existing, partially overlapping segments of time series eliminating breaks and inconsistencies. • This is in line with users' expectations involved in BC analysis and econometric modelling Eurostat – Unit D5 Key indicators for European policies

7. Main requirements of the Eurostat strategy • Use of maximum possible observational content • The method  statistically sound-documented-easily understandable and publicly available • Specific metadata  attached to the results • Replicable methodology • … applicable both to non SA and SA data • Method  easy to maintain • Reconstructed long series  distinguished from official versions • Avoid questionable results (e.g. calculation of EU-27 back to '70s) • Target: back to 1970; euro area 12 and EU 15 aggregates Eurostat – Unit D5 Key indicators for European policies

8. Statistical approach • Several alternative methods explored • Linear dynamic models could conduct towards explosive results • Non-invertibility of most macro-economic series • Simple regression models is a guarantee of quality in the results • complemented by benchmarking • preservation of growth rates Eurostat – Unit D5 Key indicators for European policies

9. Characteristics of the developed methodology • Simple and robust method based on linear regression models • Hypothesis  overlap between the target series and a proxy • A similar approach is also adopted for annual national accounts. • Overlapping sub-periods  all the information at national level • Temporal and sectoral, linear and non linear aggregation constraints are taken into account • SA data  consistency with the approach currently used in Eurostat Eurostat – Unit D5 Key indicators for European policies

10. Outline of the Eurostat strategy:list of experimental back-calculated series Eurostat – Unit D5 Key indicators for European policies

11. Validation of results • Complex exercise involving several iterative steps • Our effort  development of a comprehensive validation strategy • The quality checks  similarity of the pattern between the official series and back-calculated ones • absence of unjustified breaks or outliers • sufficient degree of smoothness • ability to reproduce past turning points • reliability of results compared to alternative methods • attentive graphical analysis. Eurostat – Unit D5 Key indicators for European policies

12. Ongoing activities • So far, statistical validation  IPI, PPI, Turnover index, Unemployment, Employment, Building permits, Nights spent in Hotels and National Accounts • results in line with desired quality standards • Back-calculation of NACE Rev 2 data already implemented for short term business statistics Eurostat – Unit D5 Key indicators for European policies

13. An example of back-calculation:the euro area Industrial Production Index (IPI) • Target series: (denoted new series) - total industry (excluding construction) - country series and euro area 12 aggregate (EA12) - Monthly WDA index 2005=100 from January ‘96 - under the new NACE Rev.2 • Related indicators: (denoted old series) - historical indexes by country - extracted from Eurostat, OECD and NSIs - available from January ’70 (Ireland from ’76) Eurostat – Unit D5 Key indicators for European policies

14. Old and new versions of IPI for largest countries Eurostat – Unit D5 Key indicators for European policies

15. The back-calculation procedure of IPI • Fit a linear regression to the new IPI for each country • Specification: log-differences • Set of regressors:old IPI + detrministic variables • Sample: overlapping period • General to specific approach • Computation of the euro area EA12 aggregate Eurostat – Unit D5 Key indicators for European policies

16. The resulting EA12 series:comparison with main related indicators Eurostat – Unit D5 Key indicators for European policies

17. Comparison EA12/EA11-old for the series of Januaries, Aprils, Julies and Octobers: annual growth rates in % Eurostat – Unit D5 Key indicators for European policies

18. Conclusions and future actions • Sound methodology • Based on static linear regression modelling approach • Easy to maintain and to replicate • Easily applicable by Member States too • A common back-calculation approach will increase: 1) the comparability of back-calculated series; 2) the reliability of European aggregates Eurostat – Unit D5 Key indicators for European policies