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Aggregate Output Measurements: A Common Trend Approach
We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our ...
Report
GDP Solera: The Ideal Vintage Mix
We exploit the information in the successive vintages of gross domestic expenditure (GDE) and gross domestic income (GDI) from the current comprehensive revision to obtain an improved, timely measure of U.S. aggregate output by exploiting cointegration between the different measures and taking their monthly release calendar seriously. We also combine all existing overlapping comprehensive revisions to achieve further improvements. We pay particular attention to the Great Recession and the pandemic, which, despite producing dramatic fluctuations, does not generate noticeable revisions in ...