Real-Time Performance of GDPplus and Alternative Model-Based Measures of GDP: 2005–2014

Analysts concerned about the accuracy of these early estimates for expenditure GDP could focus instead on gross domestic income, the BEA’s measure of U.S. output on the income side of the national accounts.² Conceptually, GDP on the expenditure side should equal GDP on the income side, and there should be no choice to make between the two series. As a practical matter, however, the two measures can differ by a significant amount because each measure is constructed using “largely independent” source data, which themselves are “less than perfect” [BEA (2014)].

Since November 2013, the Federal Reserve Bank of Philadelphia’s Real-Time Data Research Center has been publishing GDPplus, a new measure of U.S. real GDP growth that combines the BEA’s official estimates of expenditure GDP and gross domestic income. Based on the work of Aruoba, Diebold, Nalewaik, Schorfheide, and Song (2013, henceforth ADNSS), GDPplus represents an appealing complement to the BEA’s official estimates because it combines information in those estimates in a statistically optimal manner.

GDPplus combines the information in expenditure and income GDP using a signal extraction method based on the Kalman filter. In the ADNSS framework, true GDP is treated as an unobserved variable. At the same time, the BEA’s official estimates for income and expenditure GDP are thought to be measured with error but contain a common signal about latent GDP. The Kalman filter estimates the common component that drives the BEA’s official estimates. There is, however, no unique way to estimate the common component. Different assumptions about the nature of measurement errors produce different estimates of the common component.

^[1]The components of expenditure GDP are personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.

^[2]The components of gross domestic income include wages and salaries, supplements to wages and salaries, proprietors’ income, rental income, corporate profits, and some additional measures.