Alternative Data for Faster Economic Predictions
An article by Robin Wigglesworth in the Financial Times this week calls out the fact that if governments don’t ensure they have access to new, useful sources of alternative data, policymakers risk being left in the dark in an increasingly data-rich world.
The IMF’s spring meeting this year offered a bright vision for the future of economic data collection – currently a difficult, slow and often inaccurate process. Big data and new, alternative data sources could be harnessed to produce more timely economic figures and improve forecasts – a process already underway in the UK where a new project is using data from VAT returns and lorry traffic to make faster economic predictions.
Some of the data sources discussed by IMF officials include using satellites to measure the how brightly countries are lit up at night – if they’re getting brighter over time, it’s probably a good sign of economic growth. Real time shipping data could be used to map global trade, and machine learning could help improve economic forecasts.
Alternative data sets are growing constantly as our lives become increasingly digital. While hedge funds have been making use of these vast data sets statistical agencies, central banks and governments have been slower to catch up. Wigglesworth points out that alternative data is almost entirely generated and stored in the private sector, with public bodies not currently buying and cleaning this data themselves.
Access to information is a crucial component of ensuring proper transparency, democracy and effective economic policy. Exactly how regulators and policymakers deal with entirely new sources of data is a vital question.
Read more here.