from organic to designed...

From Organic to Designed Data: Billion Prices Project Thousand Big Mac’s Index Project

Roberto Rigobon MIT, NBER, CSAC, CNSTAT

Macro Assessment •  Where is the US economy right now?

–  Labor Market? •  Unemployment

•  Labor Market Participation

Macro Assessment •  Where is the US economy right now?

–  Inflation? •  CPI Inflation

•  Core Inflation

Macro Assessment •  Eliminate extreme outcomes

–  We are not booming –  We are not collapsing

•  What is causing inflation to drop? –  How much is due to oil prices? –  How much is the dollar appreciation?

Types of Data

Data

Designed Organic

Administrative Survey

Industry Standards Regulation

Aspirational Transaction

Types of Data

6

Designed Data Organic Data

Representative Non-representative

Scope is limited Volume, Velocity, Variety

Costly Cheap

Difficult Access Open

Intrusive Non-intrusive

Organic Data: Two Types Aspirational:

Rainbows and Unicorns Transactional: Breadcrumbs

What we observe? A version of the individuals, companies or transactions

A limited description of what the individual or firm HAS done

Where is it found? Facebook, Twitter, CV, Reviews, Social Networks, Blogs, API’s and Scanner

Clicks, Transactions, Online Stores, Sensors, Radio, Satellites, Location, Networks, Wearables API’s and Scanner

Main problems/challenges •  Selection •  Sample Uncertainty •  Model Uncertainty

•  Model Uncertainty

Access? Open Harder

BigData Types: A Simple Framework

Aspirational Transactional

Public

Private

Internet Facebook

Social Networks

Scanner

Clicks

Surveys

GPS

Emails

Recommendations

Reviews

Credit Cards

RFID

Data Types: A Simple Framework

Aspirational Transactional

Public

Private Health IRS

Census

Financial Statements

Surveys

Online Information and Indexes

10

• Date •  Item • Price • Description

Our Approach to Daily Inflation Statistics

Use scraping technology

Connect to thousands of online retailers every day

Find individual items

Develop daily inflation statistics for ~20 countries

1 2 3 4 5 Store and process key item information in a database

Online Inflation The Billion Prices Project

USA UK

Euro Australia

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Brazil Colombia

Chile China Fresh Food

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Properties •  Congruence

–  Inflation online is similar to the official inflation at medium frequencies (9 months)

•  Anticipation –  Inflation online moves two to three months before the official

release –  There is at least 20 days for publication lags – we get 3 days!

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New Approach to Core •  We can separate the effects of macroeconomic shocks

–  Oil price drops •  Direct Effect: impact of oil prices on gasoline prices (or energy

prices) •  Indirect Effect: impact of lower oil prices on transportation,

imported goods, services, etc. –  Exchange Rate movements

•  Pass-through: impact of nominal exchange rate changes on imported items, and its indirect impact on the economy.

US Core

Online Real Exchange Rate The Thousand Big Mac Indexes

The International Comparison Program •  The International Comparison Program (ICP) is the world's largest

statistical initiative. –  Established in 1968 –  It is now the largest international data collection exercise involving five

regions and 107 countries. –  The results will be combined with the OECD/Eurostat PPP program for

43 countries, bringing the total to about 150 benchmark countries.

•  Measure disequilibrium two ways: –  Compare the purchasing power across nations for similar goods or

basket of goods –  Compare the time series or international relative prices for similar

goods or basket of goods

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Two issues with the ICP •  Comparing identical products

–  Any international comparison either compares individual products or baskets of identical products. •  How to make sure the products are identical? •  How to deal with different statistical capacities worldwide?

•  The assumptions on segmentation and labor market share are too stark. –  In reality technologies differ across products and across degrees of

segmentation.

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Wine 2011

2012

Pus,2011

Pus,2012

PFr,2011

PFr,2012

PFr,2011 (us)

PFr,2012 (us)

Two issues with the ICP •  Comparing identical products

–  Any international comparison either compares individual products or baskets of identical products. •  How to make sure the products are identical? •  How to deal with different statistical capacities worldwide?

•  The assumptions on segmentation and labor market share are too stark. –  In reality technologies differ across products and across degrees of

segmentation.

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Relative Absolute Price Deviation

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Degree of Segmentation

International Price Dispersion


Average Price Deviation

25




Big Mac

26




Sectorial RER: Average of a subset of items

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Advantages Disadvantages

Real Exchange Rate •  True Measure •  International matching of products is extremely hard

Big Mac

•  Close to the true model •  Non-tradable highly labor

intensive

•  Price fluctuations of one item might be driven by idiosyncratic shocks and not aggregate fluctuations

•  The measure of the deviation is related to the true measure but tends to overstate the degree of appreciation

Sectorial Real Exchange Rate

•  Goods can be matched better •  In our case they are matched

exactly in many retailers

•  The measure of the deviation is related to the true measure but not identical.

•  Direction is the same, but bias is unknown •  The smaller the degree of segmentation the

more compressed the price dispersion is and the less informative is the index

Proportion of Extreme Observations

•  Goods can be matched better •  In our case they are matched

exactly in many retailers •  Solves the price compression

from the tradable products

•  This is not a true measure of the average deviation.

•  It is correlated with the average price deviation

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Comparison

Thousands Big Mac’s Project

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Compare prices for a bottle of Coke across countries

•  Online prices represent an effective tool to measure PPP fluctuations

–  Identical items sold around the world –  Detailed descriptions to achieve a

nearly perfect matching –  Daily Prices

•  PPP indices: –  More than 300 narrow product

categories –  With thousands individually matched

items –  In food, fuel, and electronics: we are

missing clothing, personal care, household products.

–  Cars we will never match Apply similar approach to hundreds of

products on a daily basis

PPP Indices

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http://www.zara.com/us/en/man/beachwear/basic-short-

swim-trunks-c721501p2708544.html

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US UK Japan Spain

p2708544

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http://www.zara.com/jp/ja/メンズ/ビーチウェア/ベーシックショート水着-c721501p2708544.html

Big Mac for Brazil

0.95

1

1.05

1.1

1.15

1.2

1.25

1.3

1.35

2013 2013.5 2014 2014.5 2015

Relative Price of Big Mac

33

34 Tomato

BigMac Approach to all tradables

35 Gasoline and Diesel


36 TV 60-66in Sony LCD


37


38


39

Thousands of Big Mac’s Indexes

Average Price Deviation •  Average the prices within categories •  Aggregate to sectors •  Aggregate to the whole economy

Aggregation to average price deviations per sector

41

Food


42

Fuel


43

Electronics

RER for the three sectors

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Economic Activity

Japan’s Earthquake

Notes: Graph from “Inflation in Focus”, September 2001. Product Availability normalized to 100 on 02/01/2011

80

85

90

95

100

105

Feb-‐11 Apr-‐11 Jun-‐11 Jul-‐11

J apanese Industrial P roduc tionGoods availability in J apan (20 -‐day average)

Earthquake March 11th, 2011

Thailand’s Flooding

Notes: Product Availability normalized to 100 on 10/1/2011

0

20

40

60

80

100

120

10/1

10/3

10/5

10/7

10/9

10/1

1

10/1

3

10/1

5

10/1

7

10/1

9

10/2

1

10/2

3

10/2

5

10/2

7

10/2

9

10/3

1

What do “I” need? •  I just need… one billion prices… Well, actually…

11/24/15

One trillion!!!!

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