1
IMPROVING NATIONAL ACCOUNTS
BY
KARL-GUSTAV HANSSON
PREPARED
FOR
CybCon 2003
Recent Topics in Cybernetics
Room S221, 2nd Floor, St Clements Building
LSE, Houghton Street, London WC2A SAE
1
2
WHY
SHOULD WE IMPROVE OUR
NATIONAL ACCOUNTS
THERE ARE A NUMBER OF REASONS
3
SOME ILLUSTRATIONS
FINANCIAL ACCOUNTS VS NATIONAL ACCOUNTS
FREIGHTS ON ROADS
PRELIMINARY AND FINAL NATIONAL ACCOUNTS
CINEMA TICKETS
3
4
ABOUT
NATIONAL ACCOUNTS
I. PROPERTIES
 Positive
 Negative
II. FAILURES
 Messy
 Misunderstanding
 Inaccurate outcomes
III. WHAT HAS TO BE DONE?
 New basic systems
 Analytical National Accounting
 Academic foundations
5
5
SNA 93, Some properties
 The structure is
Consistent
Coherent
Handbook on Quarterly
Accounts
Extensively discussed.
Completely integrated
I agree about that.
Operational
Different from most administrative concepts
 Not transparent enough
Too messy description
Too messy accounting structure
Enough to study
 SNA 93
 ENS 95
A number of too vague and fancy concepts
 Wide open for
Messy administrative data systems
Heavy and costly compilation
Compilers and Users
Can verify all that
Misunderstandings, compiler/ users
Wrong and totally different interpretations, compilers/users
Inconsistent accounting, especially in a broader sense
No contra accounting
Contra accounting several times
Creating different kinds of residuals
Administrative mistakes
Require a careful
study of an actual
accounting system
6
Our National Accounts
 Are not
Obvious trough
ocular
investigation
Analytical
Balanceable
Quarterly/Annual Measures
Production/Expenditure Measures
Consistent
Internally
Over time
The quantities valued in fixed and current price
Quarterly/Annual
Accurate, Transparent
 Bad indicator for the true business cycle
There are number of sources for that
Will be revealed by a close
study of the national accounts
accounting systems
Net accounting
Trade margins
Method of quality adjustments
The balancing procedure
Production and Expenditures different sources
A number of system compilations within the system
VAT
Capital consumption
The fixed price compilation
Wrong price index
Axiomatic approach
Economic approach
Interpolation
Indicators
Quasi-accounting
Quasi-reconciliation
Reference year, t-1 prices
7
From Handbook on Quarterly Accounts, Eurostat
11.16. (p. 244) It will be useful to summarise the outcome of the consideration of the three main principles. It is recommended that, despite the practical and other problems mentioned earlier, the arguments are strongly in
favour of a single figure for GDP, and achieving complete consistency in
the published accounts, with no statistical discrepancies, and with all variables subject to possible adjustment. Only this approach can provide the
most meaningful set of economic data. The onus is on the compiling statisticians to use their expertise to see that this is done. A number of problems,
both statistical and operational, will need to be overcome. Other matters to
be addressed will include informing users about the balancing process and,
most crucially, maintaining confidence in the estimates. Some of these
problems are considered further below (see § 11.75-11.79).
7
8
Statement by Eurostat
Handbook on Quarterly Accounts
 Requirements upon the national accounts
Single figure for GDP
Complete consistency
No statistical discrepancies
Good!
But you get no help.
You are left to yourself.
 Compiling statistician’s responsibility
Use their expertise to see that this is done
Informing users about the balancing process
Maintaining confidence in the estimates
Basic Requirement for living up to that
 Basic and Transparent Tables for National Accounting
 Underlying Statistics have to be Time and Value Consistent
 Effective Compiling of Input Data and National Accounts
 Firm Academic Foundation and Academic Research
 Fundamental Basic and Academic Training for Compilers and Users
 Open Attitude to Criticism
9
There are a number of ways
to classify the compilation problems that need to be solved:
 National accounts have no statistical content.
 National accounts are not consistent or neutral.
 National accounts do not meet the analytical requirements as determined by
model application
econometric theory
mathematical statements.
International recommendations do not contain instructions about
 Quality management
 Methods of compilation
 How to construct stable terminology
 How to construct a workable set up of accounts
We are left to ourselves.
We are without proper support from scholars and a well-prepared academic world.
Which are the prerequisite for well-informed users and compilers.
The problems now identified are so deep and complex that I doubt that there is a realistic possibility
of solving them under SNA 1993, and ESA 1995 within an acceptable horizon, nor under the established conventions for compilation of basic economic figures, nor under the present conventions for
calibration, consolidation, maintenance, and administration of our National Accounts. In these matters I propose a completely new approach by consolidating monthly and authentic National Accounts based on authentic and micro-based basic economic figures. Published under a monthly and
accumulative production cycle.
Why has this situation become so deep-rooted?
Some of the basic reasons, as I see them, can be summarized as:




lack of philosophical and scientific interest;
lack of a substantive statistical quality approach;
lack of constructive and effective operational approach;
lack of deep and workable insights in the subject matter, by users as well as by
producers.
If this is a correct interpretation and description of the problem, then one cannot be surprised if our
National Accounts and economic statistics are statistically too inferior in many respects. In the
meaning that they do not possess the most elementary properties desired for scientific analysis. If so,
it certainly can be proven by an accurate statistical inquiry.
9
10
My Opinion
National Accounts should be:
 Analytic and entirely consistent
 A Basic and Authentic Account,
i.e. the aggregated real production and transactions in the economy based on true
micro economic foundation, collected in real time
 Easy to understand
for users as well as producers, especially the national accountants
This implies:
 Micro founded book keeping, simultaneously in fixed and current prices directly
and timely in the basic economic agents’ internal book keeping system
 The need of a simple and easy workable statistical system
 A simple and easy workable national accounting system
 Scientifically formed approach regarding
Research
Development
Education
Proper academic program, based on a critical agenda
In reality this is far from the case.
Since the 1940s and 1950s there have been:
 A constant cry over bad national accounts regarding timeliness, and usefulness
in model applications
 Number of scientific investigations showing that the national accounts have
not improved over the years, rather deteriorated
 Number of investigations showing non response from official bureaus to the
scientifically based criticisms
 A loss of academic and scientific foundation in universities
and official bureaus
11
The quick and less painful solution.
Develop and implement a completely new accounting division,
from scratch, i.e.
 New and scientifically trained personnel
 A new and effective data administration structure.
Which can handle on-line data from the economic agents internal book keeping system,
and its transmission into a complete national account in current and fixed price
 Compiling and sampling real time data
 A new statistical agenda and editing procedure
About the compilation procedure:
Basically just a data system problem.
About finding properly trained personnel:
Just an academic and an educational question.
In Short Implement
 Simple and Straightforward Accounting System
 Academic Foundation of the Accountants
 Authentic National Accounts
 Simple and Straightforward Concepts,
not fancy ones hardly to understand.
 Scientific Competent Personnel.
11
12
A SYSTEM FOR
DYNAMIC AND ANALYTICAL
ACCOUNTING
I. BASIC ACCOUNTING TABLE







Easy to Program
Easy to Understand
Easy to Update
Easy to Balance
Easy to Use in Applications
Transformable
Transparent
I. BASIC ACCOUNTING RULES
 Required for accounting
 Required for maintenance
 Required for proper applications
II. COMPILING SYSTEM






Easy to Program
Easy to Understand
Easy to Update
Easy to Maintain
Easy to Use in Applications
Transparent
13
BASIC ACCOUNTING TABLE
TO BE PREFERRED
TO
THE SYSTEM OF
SNA 1993 AND ESA 1995
13
14
The Basic Accounting Table
15
BASIC ACCOUNTING RULES
PRE-CONDITION
FOR
ANALYTICAL NATIONAL ACCOUNTING
AND
PROPER
MODEL APPLICATION
15
16
National Accounts: Desired properties
What are the desirable properties for the possibility to a proper model application?
The Challenge:
Ensure Proper Model Application





Econometric models
Forecasting models
Economic analysis
Macro economic models
Micro economic models
You are interested in






Growth analysis
Forecasting
Building macro and micro economic models
Conventional economic analysis
Testing economic hypothesis
Study the interaction between economic agents and
macro and micro variables
National Accounts Have To Be


Entirely
Completely
Totally
Consistent
Analytical
Instant and Consistent Accounting
of Authentic Data
17
17
Analytical National Accounting
Basic Accounting Rules
1. Quantity Consistency in Current and Fixed Prices
pt qt
po qt
t=Day
2. Identical Contra Accounting Between Involved Agents
Agent II
Agent
III
III
Value xx
xxxx
tt II Value
III
III
III
tI
tt II
3. Time Consistency
T
T
pq
t 0
Agent II
II
Agent
III
III
Value xx
Value
xx
tt
III
III
II t
It I
p q
t t
t 0
o t
T=Month, Quarter, Year
4. Neutrality
5. Exhaustiveness
pt qt
pt qt po qt


 Pp  Lq
po qo po qt po qo
T
T
pq
t
p q
o
t
t 0
T
t 0
o

pq
t 0
t
T
t
(T  1) po qo

pq
t 0
T
t
T
t
p q
t 0
o

p q
t 0
o
t
(T  1) po qo
 PC , P  LC ,Q
t
6. Space Consistency
But Actually.
7. Dynamic Accounting
Rule 1: Implies 3, 4 and 5.
pt qt
Rules 1 and 2: Imply 6.
p̂o qt
Advise: State them explicitly.
Required Accounting for Analytical National Accounts
18
THE ARGUMENTS
FOR
THE BASIC RULES
DETERMINING
BASICAL FOR ANALYTICAL
ACCOUNTING
NO RULE CAN BE IGNORED
19
Fixed and Current National Accounting
The Classical Indices
(1’)
pt qt
pq p q
 t t  o t  Ppt  Ltq
p o q o p o qt p o q o
(1’’)
pt qt
pq pq
 t t  t o  Pqt  Ltp
p o q o pt q o p o q o
(1’’’)
 pq
pt qt
  t t
po qo
 po qo
2
 pt q o p o qt
 


p
q
p
q
t o
o t

 Ppt  Ltp  Pqt  Ltq  Fpt  Fqt
(2’)
pt qt
 po qt
Ppt
(2’’)
pt qt
 Pqt ( p o q o )
t
Lp
(2’’’)
pt qt
t

F
( po qo )
q
t
Fp
The Walsh Approach
(3)
pt qt
pq /p q
 t t o o ( po qo ) 
PW
PW
pt qt / po qo
 n
( p o qo )
n
 pti qti qoi  poi qti qoi
i 1
i 1
19
20
Double Weighted Geometric Mean (Törnquist variety)
n
p y ,m q y ,m
I y ,m

p
i 1
y , m ,i
q y , m ,i
5
(4)
w y 1, j
 10 

Py , m, j , k 
 100 



Py , 0, j ,k 

j 1  k 1 
y ,m, j ,k  y ,m, j
 
a y 1, j ,k

n

p
i 1
y , m ,i
q y , m ,i
w y 1, j
a y 1, j ,k
 10 


V y ,m, j ,k q y ,m, j ,k
 100 



V y ,0, j ,k q y , 0, j , k 

j 1  k 1 

y
,
m
,
j
,
k

 y ,m, j

5
n

p
i 1
n
y , m ,i
q y , m ,i
p
i 1
y , 0 ,i
q y , 0 ,i
n
 10 

V y ,m, j ,k q y ,m, j ,k 
 100 



V y ,0, j , k q y , 0, j , k 

j 1  k 1 

y ,m, j ,k 

a y 1, j ,k
5
w y 1, j
  p y , 0 ,i q y , 0 ,i
i 1
y ,m, j
where
a y 1, j ,k 
1
V y1, j ,k '
10 k '10
;
V y 1, j ,k '
V y 1, j ,k 
k'
w y 1, j 
V y 1, j
5
V
j 1
y 1, j
21
21
Figure 1. Deflation by fixed base and
double national accounting
x2
F2
Accounted in current prices for F1,
but not in fixed prices.
Not accounted in current prices for F2,
but in fixed prices.
pt
po
•C
po, Pqpo, Fqpo
A
•
F1
x1
22
Dynamic Accounting
Dynamic Economy
Traded and not Traded
Not Traded and Traded
New Commodities
Disappearing Commodities
Changed Commodities
Changing Technology
Changing Product Mix
Current Prices no Problem.
But, How Account Fixed Prices?
Consider: Two Approaches
Quality Adjustment
or
Dynamic Accounting
Quality Adjustment
Input Approach
Just a Disaster for
Analytical accounting
Output Approach
Dynamic Accounting

pt qt p̂o qt
pt qt
p q pˆ q
 t t  o t  Pˆpt  Lˆtq
po qo pˆ o qt po qo
pt qt
 pˆ o qt
t
ˆ
Pp
Proper
By
Definition
23
Dynamic Accounting under The Basic Rule
Some traded commodities in period t
are not
traded in period o.
Have to be valued by a “fictitious” price, like
p̂
i
o
WHAT ABOUT THAT?
pt p̂o
ARE BASICALLY WEIGHTS IN
pt qt p̂o qt
23
24
Quality Adjustment: Input Price Approach
Theory: Basic Micro Economic Theory.
q1
pt
pt
B
 Cost minimizing enterprise.
 Solution: The Cost Function, C
 Two Approaches:
Laspeyres
Paasche

D

It
A

The Norm of
Comparing
Laspeyres
Io
pt
po
q2
Laspeyres Perspective
Lc , p 
C ( pt , I o )
p q( pt , I o )
p q( po , I o )
 t
 t
 Lp
C ( po , I o ) po q( po , I o ) po q( po , I o )
Adjustment to ideal index, the norm Io,by the costdifference
pt q( po , I o )  pt q( pt , I o )
Gives
pt q ( po , I o )  pt q( po , I o )  pt q( pt , I o ) pt q( pt , I o )

 Lc , p
po q( po , I o )
po q( po , I o )
Wich is point D
25
25
Quality Adjustment: Input Price Approach
National Accounting
q1
F2
Not accounted at F1 but at F2
Accounted twice
B
I1t
D1
I 2t
I o2
A
D2
I o2
222
1
F
q2
222
222
Not accounted
Not accounted at F1 but at F2
222
222
222
q1
F2
Dynamic Accounting
p̂ o
p̂ o
pt
p̂ o
B
I1t
I 2t
F1
q2
26
COMPILING SYSTEM
ACCOUNTING STRATEGY
ADMINISTRATION SYSTEM







UNDERLING DATA
CONSOLIDATION
COMPILING
BALANCING
REPORTS
PUBLICATIONS
SPECIAL TABLES
27
Compilation of an Analytical National Account
PREREQUISITES
Two agents always involved: Seller and Buyer.
At least in mind.
 Simultaneously counter accounting of the same value.
Seller credit accounting
Buyer debit accounting
An Analytical National Account, A, Exists.
 For every chosen and proper accounting period.
BUT HOW TO COMPILE THAT INTO AN
ANALYTICAL
NATIONAL ACCOUNT
 We cannot measure exactly
 Always a kind of statistical estimation problem.
27
28
THE CHALLENGE
 Set up a Basic National Account System, BNAS
 Set up a Compilation System that is:
Proper
Easy
Straight
Effective
Transparent
 By that compile an Analytical National Account that is:
Accurate
Transparent
Useful
 Guard for Faulty
Data
Compiling models
Compiling methods
Compiling conventions
Price indices
How to handle VAT?.
1. Compiled within the Bassic Account System.
2. Actual inflow of final VAT.
3. Gross Accounting
VAT in
VAT out
4. Some kind of Balancing VAT
S
VAT into A VAT
B
29
ACCOUNTING STRATEGY
Simultaneous accounting in current and fixed prices.
I. Seller Accounting, S
Accounting of the sellers selling.
By product and counterpart.
Counter accounting of the same value for the buyer.
By product and counterpart.
II. Buyer Accounting, B
Accounting of the buyers buying.
By product and counterpart.
Counter accounting for the seller.
By product and counterpart.
One or the other, or both.
First Option: Seller accounting.
For check: Buyer accounting.
Recommendable
Single GDP: Require balancing.
III. Balancing S and B
Both accounts imply balanced accounting, always.
Accounting day: Invoice day/Day of exchange
Analytic accounting. Required accounting rule.
Gross accounting, always, for example
No trade margins
No net taxes
No fixed input coefficient
All compilation in Basic System
Counter accounting
Editing
Balancing into a single GDP figure
IV. The special accounts for:
Eurostat
Directly from the Basic Account, by consistent reordering.
Publication
29
30
BALANCING STRATEGY
Continuous procedure. An Analytical National Accounts, A, is the limit.
A is a true National Account.
S
Balancing into A Iterative process, lim A
B
Such that
S  A  B, or B  A  S
S B  A
We can assume that initially
S
B
But probably

 A
S  B
Balancing rule.
Iterative process.
If S and B analytic, then A also analytic.
Sampling and updating
Daily for a specific accounting period
Accounting period
Week
Month
Quarter
Year
Possible. Not recommendable
Possible. Recommendable
Sum of three month
Sum of four quarters, Sum of 12 month
31
A System for Consolidation and Balancing,
SCB
 System for daily compiling data in current and fixed prices
on enterprise level, DCE
Sale by product and counterpart
Purchase by product and counterpart
 System for gathering and storing monthly data in current and fixed
prices from the data delivering enterprises. Daily reporting.
 System for compiling Monthly National Account, MNA
Updating
Consolidation
Balancing
 System for compiling Quarterly National Account, QNA
Updating
Consolidation
Balancing
 System for compiling Annual National Account, ANA
Updating
Consolidation
Balancing
 System for compiling National Account for Eurostat, NA Eurostat
Updating
Consolidation
Balancing
 System for compiling National Accounts for publication, NA Publ
Updating
Consolidation
Balancing
31
32