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```					How to read ｅｃｏｎｏｍｉｃ
statistics
December 2009
Today we learn…
1. Can we read statistics as they are?
2. Averaging as a strong tool to read
statistics.
3. Tools to read economic statistics
1. Can we read statistics as they are?
Original data
• Original data will not tell a lot.
• For example, you can find a company’s
sale of a month as USD 10,000.
• This data dose not tell if the company is
growing, or if the company is financially
viable.
• To obtain information, we have to compare
the data with other data.
Index
• Many economic statistics are published in
the form of indexes. Many also create thier
own indexes for their analyses.
• An index is a number indicating the level
of wages or prices as compared with some
standard value.
• “Base period” is a specific time period
used as a benchmark in measuring
financial or economic data.
Indexing Enables Comparison of
Data of Any Magnitude
• Start Data at the Same Point
A relatively simple way to make comparisons is
by indexing data to a common starting point. In
effect, the variables in question must be set
equal to each other and then examined over
time for differences.
• Indexed data are handy because they allow an
observer to quickly determine rates of growth by
looking at a chart's vertical axis. They also allow
for comparison of variables with different
magnitudes.
International comparison can be
very easy with indexing
Comparison of M1's level

120

115
Jan-2007=100

110                                                                                                                        Japan
USA
105                                                                                                                        Euro

100

95
Mar-07

Sep-07

Nov-07

Mar-08

Sep-08

Nov-08
Jul-07

Jul-08
May-07

May-08
Jan-07

Jan-08

Jan-09
Year-On-Year
• A year-on-year comparison is a method of
evaluating two or more measured events
that compares the results of measurement
at one time period with those from another
time period (or series of time periods), on
an annualized basis.
• Any measurable events that recur annually
can be compared on a year-on-year basis.
-15.0%
-10.0%
-5.0%
10.0%

0.0%
5.0%
2004/ 1- 3.
4- 6.
7- 9.
10- 12.
2005/ 1- 3.
4- 6.
7- 9.
10- 12.
2006/ 1- 3.
4- 6.
7- 9.
10- 12.
2007/ 1- 3.
4- 6.
7- 9.
10- 12.
2008/ 1- 3.
4- 6.
trend well.

7- 9.
10- 12.
2009/ 1- 3.
4- 6.
7- 9.
YOY
QOQ(annualized)
YOY growth rate catches economic
• X-12 ARIMA (developed by the US
Census Bureau)
• TRAMO-ＳＥＡＴＳ (Maintained by the
Eurostat)
• Leap Year problem cannot be avoided by
the YOY method.
Even GDP shows seasonal
movements.
150,000.00             580,000.00
570,000.00
145,000.00
560,000.00
140,000.00             550,000.00
135,000.00             540,000.00
530,000.00   Before SA
130,000.00
520,000.00   After SA
125,000.00             510,000.00
120,000.00             500,000.00
490,000.00
115,000.00
480,000.00
110,000.00             470,000.00
1- .

9.
/ 9.

/ 9.

/ 9.

/ 9.

/ 9.

/ 9
04 7- .

05 7- .

06 7- .

07 7- .

08 7- .

09 7- .

7- .
3

3

3

3

3

3

3
1-

1-

1-

1-

1-

1-
/
03
20

20

20

20

20

20

20
2. Averaging
• Economists use smoothing techniques to
help show the economic trend in data
• To decipher trends in data series,
researchers perform various statistical
manipulations. These operations are
referred to as “smoothing techniques” and
are designed to reduce or eliminate short-
term volatility in data.
A Moving Average Can Smooth Data That
• For example, we can calculate the three
periods moving average as follow.
X t1  X t  X t1
MAt 
3
• A smoothed series is preferred to a non-
smoothed one because it may capture changes
in the direction of the economy better than the
-15.0%
-10.0%
-5.0%
10.0%

0.0%
5.0%
2004/ 1- 3.
4- 6.
7- 9.
10- 12.
2005/ 1- 3.
4- 6.
7- 9.
10- 12.
2006/ 1- 3.
4- 6.
7- 9.
10- 12.
2007/ 1- 3.
4- 6.
7- 9.
10- 12.
2008/ 1- 3.
4- 6.
7- 9.
10- 12.
2009/ 1- 3.
average

4- 6.
7- 9.
YOY

periods)
QOQ(annualized)

moving average(QOQ, 3
Example of simple 3 period moving
3. Tools to read economic statistics

3-1 Annualized growth rate
• To understand the significance of the
value, we often calculate annualized
growth rate.
• If quarterly economic growth rate is 0.5%,
if the growth rate continue to be the same
over the year, we can get the annual
growth rate by, (1+0.005)4-1= 2.015%.
• Or simply multiply the figure by 4.
3-2 Carry-over effect
• “However, the apparent decline in annual growth in 2009
is somewhat misleading. It is necessary to look at the
quarterly profile of growth to understand the dynamics of
activity in the euro area. In particular, the relative
strength of growth in 2008 is partly a carry-over effect of
the robust quarterly rates of growth towards the end of
2007 and in the first quarter of 2008. Along the same line,
the weaker outlook in 2009 reflects a more modest
growth at the end of 2008 and beginning of 2009. The
underlying quarterly profile reflects expectations of a
gradual economic recovery in the euro area from the end
of this year and into 2009 and 2010”.
Example from “Economic perspectives and monetary policy”, speech by Jürgen
Stark, Member of the Executive Board and the Governing Council, delivered at Fionia
Bank Investment Conference, Nyborg, Denmark, 8 September 2008
Assume at Q4 in the year 2, growth rate
jumped up.
Quartely grwoth rate

6.0%

5.0%

4.0%

original
3.0%
positive shock in Q4 of year 2
2.0%

1.0%

0.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1           2           3             4
Yearly rate become highest not in the
second year but in the third year.

8.0%                          Yearly growth rate will be
highest in year 3, not in
7.0%                          year 2.

6.0%

5.0%
original
4.0%
positive shock in Q4 of year 2
3.0%

2.0%

1.0%

0.0%
1     2     3      4
If we looked at the level, the logic
of carry over effect will be clear.
Quartely level of indexes

1.25

1.2

1.15                                                        original

positive shock in Q4 of year
1.1                                                        2

1.05

1
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1           2           3              4
The level will be permanently
higher
yearly level of indexes

5

4.8

4.6

original
4.4
positive shock in Q4 of year
4.2
2

4

3.8

3.6
1   2      3              4
3-3 Contributions to growth
• We often see in article in the newspapers
that the this quarterly’s economic growth is
attributable to the Investment or
consumption or etc.
• Growth rate of GDP can be decomposed
in to growth in each component of GDP.
• This allows researcher to identify the
source of economic growth.
Japan’s economic growth rate differ
between the nominal and real.

Comparison of the real and nominal GDP grwoth rate

14.0%
Total growth rate between the periods

12.0%
10.0%
8.0%
6.0%
Nominal GDP growth rate
4.0%
Real GDP growth rate
2.0%
0.0%
-2.0%
-4.0%
-6.0%
1991-2001        2001-2007         2007-2008
What factors contributed to the
economic growth?
Contribution from GDP components, Real GDP

15.0%

10.0%

5.0%                                                            Net Export
Government purchase
Investment
0.0%                                                            Consumption

-5.0%

-10.0%
1991-2001           2001-2007          2007-2008
The contribution of the net export to
the nominal growth was limited
Contribution from GDP components, Nominal GDP

15.0%

10.0%

5.0%                                                         Net Export
Government purchase
Investment
0.0%                                                         Consumption

-5.0%

-10.0%
1991-2001          2001-2007           2007-2008
Japan’s current economic
condition and desirable
macroeconomic policy
Susumu Kuwahara
Major facts
• Age structure: 0-14 years: 13.5%, 15-64 years: 64.3%
65- years: 22.2% (2009)
• Total Fertility Rate: 1.37 (2008)
• Life expectancy men:79.26, women:86.05
• GDP: 4,385,435 mil.\$ No. 3 in the World.(2007)
• GDP per capita: 34,326 \$. (2007, \$1=\117.26)
• Major Industry: Automobile, Electronics, but the share of
tertiary industry is as large as 72% in 2007.
– Export: Asia:49.4%, North America: 18.9%,Western Europe: 14.1%.
– Import: Asia: 40.5%, Middle East: 22.0%, North America: 11.9%,
Location
Japan faced wave of external
shocks since 1997
• Since 1991, Japan entered into the so-
• In 1997-98, Japan was one of the victims
of the Asian Currency Financial Crisis.
• In 2001, collapse of the IT bubble hit
Japan, too.
• In 2008, Leman shock hit Japan indirectly
through US recession.
The performance of the past
Real Growth rate    Nominal Groth rate

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%
1996 1997   1998   1999 2000   2001   2002 2003   2004 2005    2006   2007 2008

Data: Cabinet Office
Monetary policy played limited role
to prevent prolonged deflation
Inflation(CPI)          Inflation(GDP)     Money StockM2)

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%
1997   1998   1999   2000        2001     2002   2003    2004   2005   2006   2007   2008

Data: Bank of Japan, Cabinet Office
Real interest rate has been positive

Inflation(CPI)      Inflation(GDP)    Bond rate(10years)

2.5%

2.0%

1.5%
1.0%

0.5%

0.0%

-0.5%
-1.0%

-1.5%
-2.0%
1997   1998   1999   2000      2001   2002   2003   2004   2005   2006   2007   2008

Data: Bank of Japan, Cabinet Office
Nominal GDP even shrank
Real and Nominal GDP of Japan

580

560

540
trillion yen

520                                                                                              Real GDP
500                                                                                              Nominal GDP

480

460

440
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
year

Data: Cabinet Office
The relationship between price and
output suggests AD shock in 2008
The relation between GDP deflator and the real GDP from 1996-2008

104

102                          1996
GDP deflator(2000=100)

100

98

96

94

92
2008
90
480      490      500      510     520       530         540    550     560   570
Real GDP(2005 price, trillion yen)

Data: Cabinet Office
Okun’s Law suggests decline in
employment in 2009
Okun's law 1997-2008

4.0%

3.0%                              y = -0.0331x + 0.0117
2
R = 0.6701
real GDP growth rate

2.0%

1.0%                                   Okun's Law
0.0%                                   線形 (Okun's Law)
-1          -0.5               0            0.5       1
-1.0%

-2.0%

-3.0%
increase of unemployment rate

Data: Cabinet Office, Statistics Bureau
Unemployment jumped up in 2009

unemployment rate

6

5

4

3
%

2

1

0
1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009

Data: Statistics Bureau
Demand shocks come from both
IS* and LM* sides
Mundell-Fleming
1996
1.1

1

0.9

0.8
2008
0.7

0.6
480   490   500      510        520      530          540     550   560   570
Real GDP(2000 year prices, trillion yen)

Data: Cabinet Office
Japan’s fiscal position was
weakened after shocks

Tax and receipt                 Outlay         Deficit

50

40

30
% of Nominal GDP

20

10

0

-10

-20
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Data: OECD(2009) Economic Outlook 85.
Debt is accumulating
Debt/GDP

250%

200%

150%
Debt/GDP
100%

50%

0%
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010
Data: OECD(2009) Economic Outlook 85.
However, current account balance has been
largely positive during the same period of time.

CAB/nominal GDP

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008

Data: Cabinet Office, Ministry of Finance
Resulting in accumulation of
foreign assets
Net Foreing Asset

60%

50%
per nominal GDP

40%

30%

20%

10%

0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Data: Cabinet Office, Ministry of Finance
Not on so strong recovery path yet
Quartely development

1.05    1995Q1
199７Q1
1.03

1.01     1999Q1
GDP deflator

0.99
2001Q4
0.97

0.95
2009Q1:\521trillion                            2008Q1：|568trillion
0.93

0.91

0.89
470          490          510         530          550        570              590
Real GDP

Data: Cabinet Office
Assessment
• Japan’s economy has shown sluggish economic
• Latest shock and recovery pattern seems to fit
well to the past ones. It suggests that Japan is
already on the recovery path, though it needs
some time before recovering convincingly.
• Limited role of the monetary policy has brought
deflation once again.
• With all the size of the internal gap the current
account surplus remains high.
• Debt problem is serious enough.
Policy recommendations
• With deflation happening, the monetary
policy should be loosened. Given the zero
interest rate, maybe some innovation is
required in the field of monetary policy.
• Long-term concern limits the use of fiscal
policy. Provided monetary stimulus, fiscal
policy should be tightened as soon as
possible.
Caveat
• Japan’s situation fit very well to the
textbook macroeconomics. This situation
is just exceptional.

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