Frank T. Denton

Adjustment of Monthly or Quarterly Series to Annual Totals: An Approach Based on Quadratic Minimization

Abstract This article considers the problem of adjusting monthly or quarterly time series to make them accord with independent annual totals or averages without introducing artificial discontinuities. A general approach and some specific procedures involving constrained minimization of a quadratic form in the differences between revised and unrevised series are proposed. Some computational advantages are noted. Attention is given to the relationships between the adjustment problem and earlier work by other authors on the creation of monthly or quarterly series when only annual figures are available. An example is provided to illustrate the application of the proposed adjustment procedures.

The Effect of Measurement Errors on Parameter Estimates and Forecasts: A Case Study Based on the Canadian Preliminary National Accounts

T HE problem of measurement errors has received rather limited attention in the estimation of econometric models and the application of such models to forecasting. The customary treatment has been to ignore the problem altogether, or else to refer to it and then hastily assume, for purposes of the task at hand, that such errors do not exist.1 There are important exceptions,2 but, on the whole, the generalization seems warranted. A major difficulty, of course, is that in practice one seldom knows much about errors in data. Sometimes estimates will have been generated by a probability sampling process so that confidence intervals can be attached to them, but much more frequently in the world of economic statistics this will not be the case. It is certainly not the case with national accounts from whence come so many of the time series used in the estimation of macroeconomic models. On the other hand, national accounting estimates such as those of Canada and the United States customarily pass through several stages of refinement. The initial estimates for year t may be published in year t + 1, revised estimates in year t + 2, and further revised estimates in year t + 3. Indeed, the process of revision may not be complete for many years. For example, in 1958 the Dominion Bureau of Statistics released historical revisions of the Canadian accounts as far back as 1926. Since the last estimates are presumably more accurate than the first ones, the differences may be looked upon as errors of a sort. It is in this light that the analysis which follows may be regarded as a case study of measurement errors and their effects, as well as an appraisal of the reliability of a particular body of data, namely the Canadian preliminary annual national accounts. We shall study the data from three points of view. First, we shall look at the nature and magnitude of the differences between the preliminary and final (i.e., latest) estimates for the period 1949-1958 3 in a more or less straightforward manner, making use of simple summary measures. Second, we shall examine the degree to which preliminary data distort the relationships between different variables and the consequences of using preliminary or incompletely revised data to estimate the structural equations in a macroeconomic model. Third, we shall inquire into the reliability of the preliminary data as a basis for making short-term forecasts.

Age, Trend, and Cohort Effects in a Macro Model of Canadian Expenditure Patterns

A quadratic almost ideal demand system allowing for age, cohort, and trend effects is developed at the macro level. The model is estimated by maximum likelihood, using a three-tier iterative/search method applied to pooled 1961–1992 time series for five regions of Canada and six categories of expenditure. Hypothesis tests indicate support for the model specification. Elasticities are compared with those reported in other studies, with special attention to food. Effects of demographic and trend variables on elasticities and expenditure shares are investigated. An overall conclusion is that such effects can be very important in a macro demand system.

A Multi-Country Analysis of the Effects of Data Revisions on an Econometric Model

Abstract This study may be regarded as an empirical contribution to the subject of measurement error in economic statistics and its influence on econometric estimation. A small annual econometric model is specified and estimated using United Nations national accounts data for each of 21 countries for the period 1955–64. The model is fitted first to preliminary data and then to revised data. Changes in coefficient estimates and related statistics resulting from the data revisions are examined. The data revisions themselves are also examined from the point of view of their magnitude, direction, and inter-series correlation.

The Effect of Professional Advice on the Stability of a Speculative Market

The paper is motivated by the apparent inconsistency of situations in which speculators rely heavily on relatively few advisers when theory and evidence indicate that market fluctuations are predominantly random and unpredictable. A highly stylized model is used to show how such situations can arise if speculators choose advisers on the basis of observed track records and how block behavior and increased market instability can result. It is argued that inferences based on track records may represent a confusion of luck with skill or, more formally, an inappropriate choice of null hypothesis to be tested. Other related issues are discussed.

Errors of aggregation and errors of specification in a consumer demand model: a theoretical note

Consumer demand models based on the concept of a representative or average consumer suffer from aggregation error. Misspecification of the underlying micro utility-maximizing model, which is virtually inevitable, also results in error. This note provides a theoretical investigation of the relationship between the two types of error. Misspecified expenditure support functions for demand systems at the micro level induce the same misspecified structure in the corresponding expenditure functions at the macro level, and the errors at the two levels are shown to be of similar order.

Modelling the Age Dynamics of Chronic Health Conditions: Life-Table-Consistent Transition Probabilities and their Application

Les sondages sur les conditions de santé chroniques fournissent des informations sur la prédominance mais pas l’incidence et le processus de changement au sein de la population. Notre étude a révelé comment “les dynamiques d’âge” des conditions chroniques—les probabilités de contracter des conditions aux âges divers, de passer d’un état d’une maladie chronique à l’autre, et de mourir—peuvent être déduites des données sur la prédominance de ces conditions, qui peuvent être considerées comme irreversibles. Les matrices de transition de probabilité ont été construites pour les groupes d’âge successifs, la séquence représentant la dynamique d’âge des conditions de santé pour une population sédentaire. Nous avons simulé la trajectoire de vie d’une cohorte sous les probabilités initiales, et encore sous les probabilités altérées, afin d’explorer les effets de la réduction du taux d’incidence ou de la mortalité associée à une condition particulière. Nous avons démontré que ces enquêtes sur les conditions chroniques peuvent être rendues encore plus valables en permettant le calcul des probabilités de transition qui définissent le processus de vieillissement pour des conditions chroniques. Surveys of chronic health conditions provide information about prevalence but not incidence and the process of change within the population. Our study shows how “age dynamics” of chronic conditions–the probabilities of contracting conditions at different ages, of moving from one chronic condition state to another, and of dying–can be inferred from prevalence data for those conditions that can be viewed as irreversible. Transition probability matrices are constructed for successive age groups, with the sequence representing the age dynamics of the health conditions for a stationary population. We simulate the life path of a cohort under the initial probabilities, and again under altered probabilities, to explore the effects of reducing the incidence or mortality rate associated with a particular condition. We show that such surveys of chronic conditions can be made even more valuable by allowing the calculation of the transition probabilities that define the chronic conditions aging process

The power function of a published hypothesis test

Abstract Publication selection processes can distort the probabilities associated with hypothesis tests. The paper defines a framework in which such distortion can be explored and considers,for illustration, the distortion of the power function of a particular test.

Prospective Unemployment and Interstate Population Movements: A Comment

turities on borrowing costs has little empirical support either. In addition, these results provide little support for the more conventional assertion that a lengthening of either contract lengths or loan-tovalue ratios is indicative of a reduction of borrowing costs to home buyers. Admittedly, the strongly negative coefficient of G in equation (3) suggests that something is wrong with my original equation.10 I find little merit, however, in Lees contention that I used an improper measure of borrowing costs and that my estimate of the income elasticity of housing demand is substantially upward biased as a result.

Macro-effects of changes in household preferences for children

The basic ideas underlying the analysis in this paper are that family size can be viewed as an economic life cycle decision and that there are decision trade-offs among fertility, consumption, and leisure. A micromodel of life cycle choice is developed and embedded in an economic-demographic macromodel. The macromodel is then used in a series of computer experiments to assess the effects on the population and the economy of changes in household preferences for children. The experiments include “factual” and “counterfactual” simulations of Canadian historical demographic experience and simulations of alternative future scenarios. The analysis and conclusions have general relevance for countries that have been through a fertility boom-and-bust sequence.