Cuba Standard launches economic index

Cuba Standard launches economic index

CUBA STANDARD — Natural disasters and politics are, of course,
unpredictable, but other aspects that shape an economy can be measured,
trends can be laid out, and forecasts can be made — even in an economy
notorious for its information deficit and the lack of clear signals.

Welcome to the Cuba Standard Economic Trend Index, the first publicly
available tool that takes the pulse of the Cuban economy. Put together
by a team of experts led by Pavel Vidal, the index — known as CSETI — is
a composite of five basic measures.

"The objective is enabling the nowcasting of the island's economic
situation, using an independent measure," says Vidal, a former Central
Bank economist and researcher at the Center for the Study of the Cuban
Economy (CEEC) at the University of Havana, who now teaches at
Universidad Javeriana in Colombia. "The CSETI will allow the
anticipation of Cuban GDP growth and offer an up-to-date signal to
investors about the state of the Cuban economy."

The CSETI, which comes as part of the Cuba Standard Economic Trend
Report, makes it unnecessary to wait until the government announces
partial GDP growth information — twice yearly, in the sessions of the
National Assembly — or to depend on the reports the National Information
and Statistics Office (ONEI) publishes with much delay on its website.

Investors in many countries around the globe count on indexes that
anticipate the official release of quarterly GDP figures. They are
usually put together by universities, research centers, consulting
firms, central banks and private financial institutions. In all cases,
the variables that make up the index are based on data by the statistics
office of the respective country, on manufacturing, employment,
consumption, personal income, confidence indexes, among others.

In the case of Cuba, this is impossible, due to the insufficient and
lagging information released by ONEI.

From ONEI, the CSETI only takes monthly visitor arrival statistics to
gauge the export of tourism services. The remainder of ONEI reports, on
agriculture, manufacturing, farmers' market sales, and on investments,
have delays of more than six months, and the historical series are
incomplete, which is why they can't be used in the index.

To get around this problem, the CSETI is based on the following strategy:

On the one hand, the Cuban GDP trend has a proven high correlation with
variables of the balance of payments: Exports, imports, terms of trade,
and external financing.

On the other hand, although Cuba doesn't publish monthly information on
trade, the main trade partners do report monthly data on exports and
imports with Cuba. So the CSETI includes data from trade partners as a
mirror of Cuban export and import statistics.

Also available are up-to-date statistics on international commodity
prices, allowing to make estimates of the terms of trade. In addition,
it is feasible to count on some proxy variables to estimate real
external financing. This way, the index includes four categories of
series. Additionally, the CSETI incorporates a fifth category that
approximates Cuba's dependency on Venezuela — the monthly trade exchange
between the two countries.

So, the theoretical and empirical framework of the balance-of-payments
constraint growth, plus the mirror information of Cuba's foreign trade,
as well as other international data, allowed us to make use of the
first-ever economic activity index for the Cuban economy.

In total, the Cuba Standard Economic Trend Index counts with 28
variables taken on a monthly base from January 1998 to the present. It
includes information on real exports and imports of the 10 leading trade
partners, it retrieves data on nickel, sugar, oil and food prices, and
it approximates real external financial flows, as well as the dependency
on Venezuela.

The Kalman Filter econometric technique used in the index allows
estimating a common component of the evolution of the 28 variables. The
method makes it possible to separate the idiosyncratic (particular)
movement of each series from the common component of all series. This
signal contained in the combination of the 28 variables draws together
the state of the economy every month, making up the CSETI.

Source: Cuba Standard launches economic index « Cuba Standard, your best
source for Cuban business news - https://www.cubastandard.com/?p=11589