Measurement Error in Macroeconomic Data and Economics Research: Data Revisions, Gross Domestic Product, and Gross Domestic Income

55 Pages Posted: 11 Nov 2015

See all articles by Phillip Li

Phillip Li

Federal Deposit Insurance Corporation

Andrew C. Chang

Board of Governors of the Federal Reserve System

Date Written: 2015-11-10

Abstract

We analyze the effect of measurement error in macroeconomic data on economics research using two features of the estimates of latent US output produced by the Bureau of Economic Analysis (BEA). First, we use the fact that the BEA publishes two theoretically identical estimates of latent US output that only differ due to measurement error: the more well-known gross domestic product (GDP), which the BEA constructs using expenditure data, and gross domestic income (GDI), which the BEA constructs using income data. Second, we use BEA revisions to previously published releases of GDP and GDI. Using a sample of 23 published economics papers from top economics journals that utilize GDP as a key component of an estimated model, we assess whether using either revised GDP or GDI instead of GDP in the published paper would change reported results. We find that estimating models using revised GDP generates the same qualitative result as the original paper in all 23 cases. Estimatin g models using GDI, both with the GDI data originally available to the authors and with revised GDI, instead of GDP generates larger differences in results than those obtained with revised GDP. For 3 of 23 papers (13%), the results we obtain with GDI are qualitatively different than the original published results.

Keywords: Data Revisions, Data Vintages, Gross Domestic Product, GDP, Gross Domestic Income, GDI, Latent Output, Measurement Error, National Statistics, National Income and Product Accounts, NIPA, Real-Time Data

Suggested Citation

Li, Phillip and Chang, Andrew C., Measurement Error in Macroeconomic Data and Economics Research: Data Revisions, Gross Domestic Product, and Gross Domestic Income (2015-11-10). FEDS Working Paper No. 2015-102, Available at SSRN: https://ssrn.com/abstract=2688937 or http://dx.doi.org/10.17016/FEDS.2015.102

Phillip Li

Federal Deposit Insurance Corporation ( email )

550 17th Street NW
Washington, DC 20429
United States
202-898-3501 (Phone)
202-898-3500 (Fax)

HOME PAGE: http://https://www.fdic.gov/bank/analytical/cfr/bios/li.html

Andrew C. Chang (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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