The impact of measurement error in the U.S. National Income and Product Accounts on forecasts of GNP and its components 1

This paper reviews the performance of the National Income and Product Accounts(NIPA) over the period 1986 through 1991. Forecasts published jointly by the American Statistical Association and the National Bureau of Economic Research are decomposed into two components, pure prediction error and data measurement error. The results show that more than two-thirds of observed forecast error could be attributed to data measurement error over all forecast horizons examined, including those as brief as one quarter ahead. Outdated estimation methods for large portions of GNP, namely PCE and S&L, are identified as potential driving forces behind the problems caused by measurement error.