Are Statistical Reporting Agencies Getting it Right? Data Rationality and Business Cycle Asymmetry

This paper provides new evidence on the rationality of early releases of industrial production (IP) and producer price index (PPI) data. Rather than following the usual practice of examining only first available and fully revised data, we examine the entire revision history for each variable. Thus, we are able to assess, for example, whether earlier releases of data are in any sense "less" rational than later releases, and when 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 6-12 months after initial release. For all variables examined, we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables. Additionally, we find that there is a clear increase in the volatility of revisions during recessions, suggesting that early data releases are less reliable in tougher economic times. Finally, we explore whether non-linearities in economic behavior manifest themselves in the form of non-linearities in the rationality of early releases of economic data, by separately analyzing expansionary and recessionary economic phases and by allowing for structural breaks. These types of non-linearities are shown to be prevalent, and in some cases lead to incorrect inferences concerning data rationality when they are not taken account of