Due to its timely availability, the WAI has the ability to bridge the information gap in monthly high frequency indicators – a vital input for monetary policy discussions.
Due to its timely availability, the WAI has the ability to bridge the information gap in monthly high frequency indicators – a vital input for monetary policy discussions.
The Reserve Bank of India (RBI), going forward, will deploy robust statistical data and machine learning (ML) techniques to enable real-time tracking of economic activities to effectively deal with the impact caused by the pandemic, RBI officials wrote in an article published in the latest edition of RBI Bulletin.
RBI has recently come out with weekly-activity indices to track the latest developments in the Indian economy with the shortest possible lag.
Two separate weekly indices have been developed using daily/weekly indicators – a 7-indicator Weekly Activity Index (WAI) reflects changes in economic activity on a year-to-year basis using a dynamic factor model; and a 15-indicator Weekly Spread Index (WDI) showing directional movement on a sequential basis that complements the model-based WAI.
Highlighting the importance of these real-time monitoring systems of the Indian economy, RBI officials said, “The outbreak of the COVID-19 pandemic has led to rapid policy action to safeguard livelihoods and timely assessment of the economy. Called to help in recovery.
“With rapid innovation and restructuring of production processes due to the pandemic, current economic indicators fell short of keeping pace with the rapid changes in the economy. It asked them to supplement them with additional data, preferably with shorter time intervals,” he said.
For central banks, timely information on economic activity was crucial for making accurate decisions, especially in monetary policy decisions. He said the information available for decision making during each round of RBI’s monetary policy was found to be highly asynchronous.
Stating that the WDI presents a sequential movement in activity to present an overall picture on the direction of trend movement, he said that these indices, in addition to providing a weekly trajectory for a selected set of economic variables, provide a strong indicator of quarterly GDP. also act as indicators.
Due to its timely availability, WAI has the potential to bridge the information gap in monthly high frequency indicators – an important input for monetary policy deliberations, he added.
“WAI tracks macroeconomic variables like monthly IIP and quarterly GDP fairly well. In particular, the 4-week MA and 13-week MA of WAI provide information on IIP and GDP growth immediately following the end of the reference month or quarter,” he said.
“Weekly indices can complement the more sophisticated nowcasting model of GDP. At present, the set of daily and weekly high frequency indicators is limited, but has been increasing at a fast pace since the outbreak of the pandemic,” he said.