The economic jigsaw - how many pieces of data should you use?
Building up your assessment of economic conditions will be a little like assembling a jigsaw - except that the pieces of evidence will not always fit neatly together and it is likely that some of them may be missing.
Given the vast amount of data available on the economy, the
obvious question is how much should you use? That is a matter
of judgement. But given what is available on both the economy
as a whole and different sectors, it is easy to become over-burdened
with information. It is always tempting to seek one more number
to try to add comfort to your thinking and conclusions. Part
of the Challenge is to decide as a team what you want to look
at and where to draw the line to avoid information overload.
Faced with potentially hundreds of different data series
on the economy, you will need to prioritise your effort and
choose a focus. Some data are essential to follow; other data
might be relevant to issues that are important at a particular
time. At all times you will need to ask yourself how a piece
of information influences your view of current and future economic
conditions. And you need to ask and decide how it influences
your judgement about inflation. Data on money, consumer spending,
exports, jobs, wages, investment or output all need to be considered
with that in mind. Information has to be pieced together to
give a picture of the economy as a whole.
©2000-2009 Bank of England.
