Saturday, April 20, 2013

"Distilling the macroeconomic news flow" and Speech Before the New Zealand Parliament on Gay Marriage

From Vox EU:
Timely measurement of the state of the economy traditionally relies on low-frequency observations of a few economic aggregates referring to previous weeks, months, or even quarters. This column presents a new method of a real-time approach to timely and more accurate macroeconomic news.

Timely measurement of the state of the economy relies traditionally on low-frequency observations of a few economic aggregates that refer to previous weeks, months, or even quarters. A prominent example is the advance estimate of GDP released quarterly about a month after the end of the quarter.
The low frequency and delayed observation of any such economic aggregate considered in isolation stands in sharp contrast with the rich macroeconomic news flow that market participants observe almost daily. This news flow contains information that agents use to learn about the economy in the absence of private information. In particular, the macroeconomic news literature has identified a large cross-section of dozens of different news releases that have significant and immediate effects on financial markets. Figure 1 shows the typical timeline for the most important macroeconomic releases in the US.

Figure 1. Reporting structure of main US macroeconomic news

The macroeconomic news flow

We obtain data on the dates, release times, and actual released figures for 43 US macroeconomic announcements covering the period from 1997 through 2011, for a total of more than 8,000 announcements over about 3,800 working days. Most macroeconomic indicators are released on different days and at different frequencies, making it difficult to process the flow of information in a systematic and consistent way. Figure 1 shows that actual news releases occur with a variety of different lags with respect to the month they are referring to.

Based on both empirical evidence and economic rationale, we first separate the aggregate economy into two broad dimensions: the nominal inflation-related announcements and news that relates to real growth. Growth data, in turn, come in two flavours: objective realisations of past economic activity and subjective often forward-looking views derived from surveys which we label `’macro sentiment’. Finally, economic activity can be split one last time into information relating to output versus employment. The following diagram summarises the different subset of macroeconomic news:

It is worth reiterating at this point that we do not include any market-based data (such as stock prices, interest rates, credit spreads, or VIX) in our analysis, as they represent already the market's interpretation of the macroeconomic news flow....MORE
And from NZ:

HT: Kids Prefer Cheese