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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
       Seasonal adjustment
• 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
Remains Volatile after Seasonal Adjustment
• 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
  unadjusted series does.
              -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
• Population: about 127million.(2009)
• 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.
• Major trading partner (2008)
   – 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-
  called “lost decade.”
• 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
          decade is just sluggish.
                              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
Terms of Trade




                 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
  performance for almost two decades.
• 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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