Nowcasting and predicting data revisions using panel survey data

Abstract

The qualitative responses that firms give to business survey questions regarding changes in their own output provide a real-time signal of official output changes. The most commonly used method to produce an aggregate quantitative indicator from business survey responses - the net balance or diffusion index - has changed little in 40 years. This paper investigates whether an improved real-time signal of official output data changes can be derived from a recently advanced method on the aggregation of survey data from panel responses. We find, in a New Zealand application, that exploiting the panel dimension to qualitative survey data gives a better in-sample signal about official data than traditional methods. Out-of-sample, it is less clear that it matters how survey data are quantified, with simpler and more parsimonious methods hard to improve. It is clear, nevertheless, that survey data, exploited in some form, help to explain revisions to official data.