Q1 GDP nowcasts

Atlanta Fed's nowcast of Q1 GDP (0.6%) was really close to preliminary estimate announced today by BEA (0.5%). Atlanta's was much closer than the New York Fed's nowcast (0.8%). The question is which of the two nowcasts will be closer to the final estimate, after revisions (available in late June).

Gavyn Davies and Juan Antolín-Díaz explain why these two nowcasts can differ so much from each other, and from their own nowcast at Fulcrum Asset Management. The Atlanta Fed's approach consists of "bean counting," i.e. they mimick the way the BEA calculates GDP by aggregating monthly data as they are released. The New York Fed's and Fulcrum's methodologies are both dynamic factor models, which extract a "common factor" from multiple time series (not only those used by BEA to estimate GDP). This underlying growth can then be scaled to match certain properties of the GDP time series (as the New York Fed does), or not be scaled (which is the approach they prefer at Fulcrum).

Talking worth hearing: GDP

Stan Pignal and Ryan Avent (from The Economist), and Mike Jakeman (from the Economist Intelligence Unit), discuss whether GDP is an appropriate indicator of an economy's health.

~12 minutes

(I wish they wouldn't implicitly endorse the popular definition of recession, i.e. two consecutive quarters of negative GDP growth. It's truly an awful notion.)

Well worth reading

1. Corruption perceptions. The 2013 results are in. Changes from 2012:

Biggest deterioration*: Syria, Spain, Gambia, Mali, Guinea-Bissau, Libya, Yemen, Mauritius and Eritrea.

Biggest improvement*: Myanmar, Laos, Senegal, and Brunei.

*I list countries with an absolute change of the corruption score of at least five points, with the exception of South Sudan, which did not have a score in 2012.

2. A new measure of U.S. GDP, by Aruoba, Diebold, Nalewaik, Schorfheide, and Song.

GDP can be estimated by measuring either expenditure or income. Since a penny spent is a penny earned, both methods should give the same answer, but there is substantial measurement error in both estimates. This column presents a new method of measuring US GDP that blends these two estimates. According to the new measure, GDP growth is about twice as persistent as the current headline measure implies. The new measure also makes the current recovery look stronger, especially in 2013.

3. Educating the economists of the future. What's wrong with Econ 101, by Matthew Klein at Bloomberg.

4. I enjoyed this interview with Richard Thaler by Douglas Clement at The Region. 

Take quantitative models, quantitative investing strategies. I think what we’ve learned—especially in the last five years or so—is there’s essentially one quantitative model. 

I don't agree with Thaler's assertion that every economist thinks that interest rates in ten years will be substantially higher than they are today.

5. Why high land prices in China are not (necessarily) a bubble, by Joseph Gyourko. The land price index that Gyourko has constructed is available here.