Can GDP Measurement Be Further Improved? Data Revision and Reconciliation

Recent years have seen many attempts to combine expenditure-side estimates of U.S. real output (GDE) growth with income-side estimates (GDI) to improve estimates of real GDP growth. We show how to incorporate information from multiple releases of noisy data to provide more precise estimates while avoiding some of the identifying assumptions required in earlier work. This relies on a new insight: using multiple data releases allows us to distinguish news and noise measurement errors in situations where a single vintage does not. We find that (a) the data prefer averaging across multiple releases instead of discarding early releases in favor of later ones, and (b) that initial estimates of GDI are quite informative. Our new measure, GDP(++), undergoes smaller revisions and tracks expenditure measures of GDP growth more closely than either the simple average of the expenditure and income measures published by the BEA or the GDP growth measure of Aruoba et al. published by the Federal Reserve Bank of Philadelphia.