Replacing sample panels in the Index of Production with

Ratio Estimates

Gregor Boyd

Office of the Chief Economic Adviser

October 2008

Index of Production (IoP)

• IoP covers – Mining, quarrying, extraction of oil and gas– Manufacturing – Electricity, gas and water supply

• Production accounts for almost 18 per cent of Scotland’s GVA (2004 weights)

• Currently 151 series make up the IoP• Panel estimation approach used where no

volume data is available (two thirds of IoP by GVA proportion)

Index of Production

Panel Estimation

• Similar concept to FTSE100• For each series (SIC2003 industry grouping)

track a panel of companies through time• Change in turnover is used as a proxy for

change in GVA• Obtain turnover data from a survey (Monthly

Production Inquiry MPI) performed by ONS• The panel is quick and easy to understand

Problems with the Panel

• No survey data for companies on the panel… have to impute turnover

• Company on panel dies

• Large new company is born

• Companies merge/demerge

• Activity of small companies is hard to monitor

• Panel refreshes lead to revisions

Ratio Estimation

• Used for Index of Services and the Index of Manufactured Exports (IME)

• Will still use the MPI survey data

• Will make use of a secondary data source (the Inter-Departmental Business Register IDBR)

• The IDBR is used as the sample frame

Ratio Estimation

• For each industry (SIC2003 grouping) and strata (company size band):– Compare the survey turnover to the turnover

of these companies on the IDBR– Apply the resultant ratio to the turnover of the

population of companies for that industry and strata on the IDBR

• This ‘imprints’ seasonal fluctuations and growth characteristics onto the IDBR.

Example Series

One-sided Winsorisation

• An outlier detection and treatment method• Outliers in survey data will affect the Grossed

turnover• Winsorisation does not modify a-typical values,

but scales the effect that they have• A threshold value is calculated for each industry

and size band and any turnover greater than this is scaled

• An outlier weight is calculated and applied to the Grossed total

Impacts of Ratio Estimation

• There will be fewer series than before (approx 50)– The number of published series should be unaffected

• Producing the IoP will take longer • Revisions to published indices and growth rates• Currently have a basic Ratio Estimation system

in place for dual running with the panel. • Ratio Estimation approach is expected to be

used for the IoP in a year’s time (Q2 2009?)

Discussion