Markets Economists study trade, production and consumption decisions, such as those that occur in a traditional marketplace. In Virtual Marketsbuyer and seller are not present and trade via intermediates and electronic information. Microeconomics examines how entities, forming a market structureinteract within a market to create a market system.
Zheng Liu, Mark M. Spiegel, and Eric B. Tallman Since lategrowth in real GDP has consistently exceeded that in real GDI, a prominent alternative measure of aggregate output, with an average difference of about 0. Is real GDP overstating the expansion?
One way to address this question is by comparing the accuracy of these measures in forecasting a benchmark measure of economic activity, the Chicago Fed National Activity Index.
Therefore, the weaker GDI growth does not necessarily indicate slower economic growth. In principle, the two measures should be identical. However, in practice, they are not.
The differences between these two series can arise from differences in source data, errors in measuring their components, and the seasonal adjustment process. We test the ability of each to forecast a benchmark measure of economic activity over the past two years.
We find that GDP consistently outperforms the other two as a more accurate predictor of aggregate economic activity over this period. This suggests that the relative weakness of GDI growth in recent years does not necessarily indicate weakness in overall economic growth.
The source data for the components that Economic activity into GDP and GDI are measured with errors, which may lead to discrepancies between the two. Further discrepancies can arise because those different components are adjusted for seasonality at different points in time see, for example, Grimm The differences between these two series can be large.
Over long periods, however, final measures of growth in GDP and GDI tend to yield roughly equivalent assessments of economic activity. Sincereal GDP grew at an average annual rate of about 3. The differences in growth are significant in this period. This divergence between the two sends mixed signals regarding the strength of recent economic activity.
Bureau of Economic Analysis. One reason may be that GDI is more highly correlated with a number of business cycle indicators, including movements in both employment and unemployment Nalewaik To evaluate the relative reliability of GDP versus GDI for measuring economic output, we compare their abilities to forecast a benchmark measure of economic activity.
The CFNAI is a monthly index of national economic activity, generated as the common component of 85 monthly series in the U. These underlying series include a wide variety of data covering production and income, employment and unemployment, personal consumption and housing, and sales and orders.
Since the discrepancy between these two series has persisted for several years, we focus on the final releases of the GDP and GDI series. Some have argued that, because the GDP and GDI series contain independent information, it may be preferable to combine the two series into a single more informative activity indicator.
As a weighted average, GDPplus indicates activity levels between the two individual series. To confirm the accuracy of our approach, we repeated our investigation with two alternative series constructed using methodologies similar to the CFNAI. The first alternative is an aggregate economic activity index EAI we constructed by extracting the common components of 90 underlying monthly time series.
The second alternative indicator we considered is an activity index constructed by Barigozzi and Lucianiwhich we call the BL index.
Like our index, the BL index includes price indexes and other measures of labor costs. This restriction implies that deviations between GDP and GDI are transitory, and that the two series follow each other over time. We describe the source data and our methodology for constructing the EAI as well as the analysis using both it and the BL index in an online appendix.
Ideally, we would have used the full sample of postwar data in our model, but there are some structural breaks in the data related to factors such as changes in the monetary policy regime since the mids and the Great Moderation that make this challenging.
We therefore choose to focus on the sample starting from the first quarter of in this discussion; our results using the full sample are similar, as we report in the online appendix.
To examine how well each of the measures of aggregate output are able to forecast the CFNAI, we estimate the model using the sample observations up to the end ofthe period before GDP and GDI diverged.
Once we determine the estimated coefficients that describe each relationship, we use those values to estimate forecasts for the period when discrepancies developed, from the first quarter of to the end of We then calculate the prediction errors, measured by the root mean-squared errors, for each measure of aggregate output.
The smaller the prediction error, the better the forecasting performance. For ease of comparison, we normalize the prediction errors from the model with GDP to one.Economic systems is the branch of economics that studies the methods and institutions by which societies determine the ownership, direction, and allocation of economic resources.
An economic system of a society is the unit of analysis. 1. (used with a sing. verb) The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic .
Economic activities can be measured in money earned, while non-economic activities are measured in fulfillment, satisfaction and happiness. Three types of economic activities are classified by.
1. (used with a sing. verb) The social science that deals with the production, distribution, and consumption of goods and services and with the theory and . Gross domestic product or GDP is one way of assessing economic activity, and the degree of current economic activity and forecasts for its future level can significantly impact business activity and profits, as well as inflation and interest rates.
For example, if we used GDI growth to assess overall economic activity since July , then the size of real aggregate output by the end of would be $ billion smaller than if GDP growth were used.
This divergence between the two sends mixed signals regarding the strength of recent economic activity.