Saturday, August 29, 2015

New CEA Overview of GDO

The U.S. Council of Economic Advisors has a nice new review of "Gross Domestic Output" (GDO), a simple average of expenditure- and income-side GDP estimates now published by the BEA.

In an earlier post I wrote rather negatively about GDO as compared to GDPplus, which is an optimally-weighted blend rather than a simple average. (See the FRB Philadelphia GDPplus site and the corresponding Aruba et al. paper available there.) My view has not changed.

But I want to be very clear about one thing: Quite apart from whether GDO is as accurate as GDPplus, GDO is surely much, much more accurate than standard expenditure-side GDP alone, or income-side GDP alone. Just look at Figure 2 and the surrounding discussion here. (in X. Chen and N. Swanson, eds., Causality, Prediction, and Specification Analysis: Recent Advances and Future Directions, Essays in Honor of Halbert L. White Jr., Springer, 2013, 1-26).

As I said in the above-mentioned earlier post (but alas, burried at the end):
I applaud the BEA's new averaged GDP. If it's not at the cutting edge, it's nevertheless much superior to the standard approach of doing nothing ... and it's an official acknowledgment of the wastefulness of doing so. Hence it's a significant step in the right direction. Hopefully its publication by BEA will nudge people away from uncritical and exclusive reliance on expenditure-side GDP. 
So here's to GDO.

[By the way, speaking of the Hal White volume, the introductory chapter is marvelous, filled with wonderful memories of Hal's career and insights into his research. You must read his description of his career path leading to UCSD, pp. vii-xi in the gray box.]