Are statistical reporting agencies getting it right? Data rationality and business cycle asymmetry

This paper provides new evidence on the rationality of industrial production (IP) and the producer price index (PPI). However, rather than examining preliminary and fully revised data, as is usually the practice, we examine the entire revision history for each data series. Thus, we are able to assess whether earlier releases of data are in any sense "less" rational than later releases, for example, and when early releases of data become rational. Our findings suggest that seasonally unadjusted IP and PPI become rational after approximately 3-4 months, while seasonally adjusted versions of these series remain irrational for at least 12 months after initial release. Additionally, we find that there is a clear increase in the volatility of early data releases during recessions, suggesting that early data are less reliable in tougher economic times. One feature of the approach that we take is that we are able to include revision histories in the information sets used to examine the rationality of a particular release of data. This in turn allows us to assess whether the revision process itself is predictable from its own past, hence possibly leading to rules for the construction of "better" preliminary releases of data. For most of the variables examined, we find evidence of this form of predictability. Another feature of the approach taken in the paper is that we are able to provide evidence suggesting that nonlinearities in economic behavior manifest themselves in the form of nonlinearities in the rationality of early releases of economic data. This is done by separately analyzing expansionary and recessionary economic phases and by allowing for structural breaks. These types of nonlinearities are shown to be prevalent, and in some cases incorrect inferences concerning unbiasedness and efficiency arise when they are not taken account of. For example, seasonally unadjusted IP data become unbiased much more quickly after 1980 than before 1980. Additionally, seasonally adjusted IP data take less time to become efficient during expansions than during recessions.