Can GDP measurement be further improved? Data revision and reconciliation

TL;DR

This paper introduces GDP++, a new method that combines multiple data releases to improve the accuracy of U.S. real GDP growth estimates by distinguishing between news and noise errors, especially before economic downturns.

Contribution

It develops a novel approach to incorporate multiple data vintages, enhancing GDP measurement accuracy without relying on strong assumptions used in previous methods.

Findings

GDP++ fits data better than previous measures

GDE data releases are more informative than GDI

Multiple data releases are crucial before the Great Recession

Abstract

Recent years have seen many attempts to combine expenditure-side estimates of U.S. real output (GDE) growth with income-side estimates (GDI) to improve estimates of real GDP growth. We show how to incorporate information from multiple releases of noisy data to provide more precise estimates while avoiding some of the identifying assumptions required in earlier work. This relies on a new insight: using multiple data releases allows us to distinguish news and noise measurement errors in situations where a single vintage does not. Our new measure, GDP++, fits the data better than GDP+, the GDP growth measure of Aruoba et al. (2016) published by the Federal Reserve Bank of Philadephia. Historical decompositions show that GDE releases are more informative than GDI, while the use of multiple data releases is particularly important in the quarters leading up to the Great Recession.