Meeting ECB users´ demands in a rapidly changing environment

Steven KEUNING* Director General Statistics, European Central Bank

Abstract. This note discusses ways to respond to ECB user’s demands, both by statistical functions of the European System of Central Banks and by the European Statistical System. First, it describes how the ESCB responds to demands for new regular statistics with a prior assessment of their expected merits and costs. Furthermore, a number of possible flexible approaches are explored to cope with the limitations of the regulatory framework. Next, it is noted that the ESCB in general and the ECB in particular are among the most intensive users of ESS statistics. While it is recognised that the needs for ECB decision-making are typically quite ambitious, any unrealistic expectations of ECB users are already curtailed in advance by the ECB’s DG Statistics, which also tries to convert the remaining needs into achievable objectives for the ESS. Finally, a better utilisation of the ECOFIN Conclusions on the EFC Status Reports is suggested.

1. Introduction

The Directorate-General Statistics (DG-S) of the European Central Bank (ECB) develops, compiles and disseminates the statistics, the statistical indicators and the metadata required for monetary policy and the other ECB tasks. ECB statistics ultimately serve decision-making. In other words, the needs of the ECB decision-making bodies determine which statistics to provide. While DG-S aims at achieving, in the most effective manner, the best quality and availability of ECB statistics and other euro area statistics that are needed for the ECB decision-making, at the same time it carefully balances the merits and costs, particularly of new statistics, also taking due account of the objective to minimise the reporting burden. The demands by policy-makers were recently well illustrated by Jürgen Stark, Member of the Executive Board of the ECB, in his speech delivered at the 4th ECB

Conference on Statistics [1]: “…our experience at the ECB has been that better data in one field does not permit any scaling down of effort in improving data in other areas. On the contrary, in the face of the constant and evolving challenges posed to monetary policy makers, better data simply facilitates the necessary deeper, broader and richer analysis that is always required in order to take decisions that can serve the ECB’s mandate .”; “(…) statisticians and reporting agents know all too well that economists and policy makers’ data requirements are, in principle, inexhaustible. The

* The contributions of Alda Morais and Violetta Damia to this note are gratefully acknowledged. Jean-Marc Israël, Patrick Sandars, Caroline Willeke and Nicole de Windt provided valuable comments on an earlier version.

merits and costs procedure adopted by the Governing Council to assess new statistical regulations reflects the need to cap this insatiable demand .”

Section 2 describes how DG-S responds to demands for new regular statistics by ECB policy- makers with a prior assessment of their expected merits and costs. This is a requirement before any new regular statistical data collection is enshrined in a binding ECB Regulation, which is directly addressed to all reporting agents in the euro area. In Section 3, the note proposes a few flexible approaches to cope with some limitations of this regulatory framework. Section 4 concludes with an overview of the role of the ECB’s DG-Statistics as a broker between European System of Central Banks (ESCB) users and European Statistical System (ESS) producers of statistics.

2. Balancing the demand for and supply of the ECB’s own statistics

The development of euro area statistics since the start of EMU has been impressive. The euro area statistics currently produced by DG-S fall into three wide groups: 1) monetary and financial statistics, including balance sheets of financial corporations, bank interest rates, securities issues and yield curves; 2) balance of payments, international investment position, effective exchange rates and other external statistics; and 3) financial accounts, euro area non-financial accounts, and some government finance and general economic statistics. [2] The latter are only compiled as long as the ESS does not provide them (e.g. residential property prices).

Despite the wide range of datasets now available in these three broad groups, there is still room for improvement. Indeed, in a dynamic economic and financial environment, statistical frameworks have to continuously evolve in order to remain fit for purpose. At the same time, resource constraints on the part of both respondents and compilers have to be taken into account. Against this background, the ECB Statistics Quality Framework and quality assurance procedures [3] include a well-defined merits and costs assessment that accompanies the identification of new statistical requirements and the development of new or substantially enhanced statistics.

Frequent contacts between statisticians and user areas at all levels, including regular co-ordination meetings, provide for an ongoing dialogue and help to identify future needs at an early stage. In addition, DG-S has a high-level, medium-term work programme [4] and prepares a rather detailed annual work programme, in close cooperation with the user areas. This work programme also updates the medium-term prospects for each of the about 50 ‘product groups’ of DG-S. In addition, the ESCB Statistics Committee (STC) has a medium-term work programme and it also approves its own annual work programme and that of its working groups. Overall, it is ensured that the ESCB’s statistical functions are well aware of user requirements. This process is greatly aided by the fact

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that the main users of central bank statistics are in-house, and that the decision-making bodies are both the ultimate users and the providers of the resources.

In general, new requirements for enhanced ESCB statistics can be grouped into three main categories: simple fine-tuning measures (e.g. introducing seasonal adjustment for formerly non- adjusted time series), “short-term approaches” (based on existing, often unharmonised data sources), and the establishment of new or substantially enhanced euro area-wide statistics with a significant impact on respondents. In the latter case, the ECB typically acts by means of an ECB legal act, and strives for stable reporting requirements for five years, with a review thereafter. To date, such a review has occurred once and led to an extension of the reporting requirements.

The follow-up given to each of the three above-mentioned types of new requirements varies. While the fine-tuning measures are only included in the internal ECB work programmes, short-term approaches are prepared in the relevant ESCB working groups and normally decided upon by the STC. Finally, new legal requirements addressed to reporting agents are channelled via a so-called “merits and costs procedure”, which was introduced by the Governing Council of the ECB in 2000 and further enhanced in 2002. Its objective is to ensure that the statistics required with a high priority are collected, compiled and disseminated, but with a minimum reporting burden and on the basis of a cost-effective compilation process, in accordance with the “Public commitment with respect to the ESCB’s statistical function” [5] . It entails an in-depth discussion within the ESCB and with other stakeholders, including representatives of the financial industry,

More specifically, the current merits and costs procedure consists of the following main stages: a) An initial assessment is carried out, including consultations with NCBs and possibly respondents, to determine whether, or not, new requirements can be met using existing statistics. b) A fact-finding may be used to analyse (partly through contact with respondents) the feasibility, significance and methodological aspects of specific requirements. c) A selection of reporting agents, the NCBs (and possibly other statistical institutions) and the ECB assess the costs of the envisaged new statistics according to a grading scheme – ranging from 1 (limited cost increase) to 5 (very large cost increase), and distinguishing between implementation costs and recurrent costs.

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d) Main users of the statistics under development 1 are asked for a qualitative and quantitative assessment of the merits of various options to fulfil their requirements. The quantitative assessment is based on a set of scores for criteria such as policy relevance, operational usefulness, international harmonisation, data quality enhancement to already existing statistics and usefulness for analyses. e) Merits and costs are matched in preparation of the final decision by the Governing Council of the ECB. This balancing of users’ needs and producers’ costs inevitably includes a substantial element of judgment. Any kind of cost-effectiveness analysis can only provide support to what is ultimately a policy decision. As in any cost-benefit analysis, the costs of decisions that are not evidence-based or based on incomplete or even wrong statistics need to be considered as well.

The overall experience so far with the merits and costs procedure has been positive. This procedure helps to establish priorities and facilitates more disciplined discussions with users and respondents. It typically leads to the dropping of initial requirements that have a somewhat lower priority and/or would lead to a very high cost increase. As the procedure has a cost in itself and significantly delays the availability of new statistics, it is confined to substantial new requirements.2

3. Innovative ways to satisfy new demands

The ECB is investigating alternative ways to reduce the statistical (and other) response burden, namely by ensuring that the same or similar data are only reported once. This can be achieved by (1) re-using available data and sharing micro data between statistical compilers, (2) converging compilation processes of both European and national statistics, and (3) harmonising concepts, definitions and reporting of data for accounting, statistical and supervisory purposes.3 However, the use of existing (administrative) sources is only feasible if producers of official statistics are granted full legal access to existing data, while maintaining their very strict confidentiality standards. In several Member States, the access to administrative data for statistical purposes is still hampered by legal obstacles. This necessitates the use of surveys which partly ask for the same data as already available with tax authorities and such.

In addition, the ESCB sees the need to look for more flexible approaches to deal with developments almost in real time. This recently happened with the need to understand the challenges for monetary

1 The main users consulted are the ESCB user committees as well as the EU Commission. 2 While this procedure substantially prolongs the preparation phase for new statistics, it facilitates the decision-making; once a draft regulation has been agreed by the STC, it is often published in the Official Journal a few months afterwards. 3 For instance, a joint expert group of the STC and the ESCB Banking Supervision Committee has recently established in order to seek for synergies between both reporting frameworks.

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policy posed by the financial turmoil, which revealed a number of gaps in the available statistics. While some of the required enhancements of the existing statistical framework were already scheduled, which illustrates the pro-active attitude of ESCB statisticians, it became clear that the conventional provision of information cannot always keep pace with financial innovations. On the other hand, so-called micro-databases (e.g. on individual securities or individual statistical units) may permit the handling of a wide range of information requests, thus allowing the derivation of statistics that are more flexibly adjusted to a rapidly changing economic and financial environment without increasing the burden for respondents (although it entails a shift in the costs from reporting agents to data compilers) [6] . The ESCB Centralised Securities Database is already utilised for this purpose.

The EuroGroups Register is another good example of a micro-database (of multinational enterprise groups) that has a great potential to harmonise and develop various statistics, in this case related to globalisation. Since recently, the ESCB is more formally involved in the development of the EuroGroups Register, not only because of its vested interest in the future Register, but also because of its expertise related to the financial corporations sector. An intensive ESS/ESCB cooperation in the area of business registers appears to be very beneficial in general, in view of the “comparative advantage” of NCBs in the area of financial corporations (e.g. in maintaining its so-called RIAD 4). Ideally, the financial entities in the RIAD register that belong to multinational groups should be combined with the EuroGroups Register, with a proper governance structure to ensure a consistent maintenance without gaps or overlaps, and taking due account of confidentiality considerations. In the future, the maintenance of comprehensive business registers may continue to be done at the national level, but a specific role of Eurostat and the ECB for large multinational corporations could be foreseen.

Finally, more ad hoc solutions may be envisaged to cope with users’ requirements for incidental usage or short-lived needs (e.g. trade negotiations). These solutions should not require changes in the (heavy) statistical legal framework but a flexible, swift response by statisticians. This can be in the form of one-off surveys and ad hoc data requests to selected key reporting agents, and through giving users access to anonymised micro data. Again, a close cooperation between the ESS and the ESCB in the area of statistical disclosure control could be beneficial. In this way, existing data, collected for different purposes, can be used as much as possible.

4 The ESCB’s RIAD (Register of institutions and eligible assets database) contains a number of harmonised registers reported by the NCBs to the ECB, including lists of monetary financial institutions, investment funds and financial vehicle corporations. These lists cover all such institutions in the EU, are updated frequently and efficiently, and are published on a monthly or quarterly basis (see a recent ECB Press Release on the development of the euro area monetary financial institutions sector under http://www.ecb.europa.eu/press/pr/date/2008/html/pr080108.en.html ).

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Cooperation with the ESS will be greatly facilitated by the envisaged amendments of the umbrella legislation for ECB statistics, namely Council Regulation 2533/98, and of the ESS umbrella Regulation (draft Regulation on European Statistics) which will make it legally possible to exchange confidential statistical data between the ESCB and the ESS for strictly statistical purposes, while safeguarding statistical confidentiality.

4. The role of the statistical functions of the ECB and the ESCB as a broker between ESCB users and ESS producers of statistics

The ESCB in general and the ECB in particular are among the most intensive users of ESS statistics. In fact, they can be considered as an essential ally of the ESS in its pursuit of impartial, high-quality European statistics. Moreover, the outside world may attach some importance to the ESCB’s views on the credibility of the ESS and its members.

Related to this, it may not be coincidental that the Committee on Monetary, Financial and Balance- of-payments Statistics (CMFB) has a significant role in the excessive deficit procedure (EDP). Council Regulation (EC) No. 2103/2005, as regards the quality of the statistical data in the EDP, attaches various tasks to the CMFB. For instance, it should provide an opinion on the correct implementation of the ESA95 accounting rules for cases that are either complex or of general interest in the view of the Commission or the Member State concerned.

Besides, the CMFB continues to play an important role as a forum for dialogue among senior statisticians of the ESS and the ESCB, which includes the conversion of ESCB users’ demands into proposals for new ESS statistics. The ESCB statisticians are well aware of the costs and response burden that may be involved in the development and running of new statistics and may be better placed than the users themselves to broker satisfactory compromise proposals for decision by the Statistical Programme Committee and the EU decision-making bodies. This includes striking the right balance between the timeliness and the reliability of statistics.

This mechanism has been particularly successful in the run-up to the EMU and afterwards, with the endorsement of the EMU Action Plan by the ECOFIN Council and the subsequent development, approval and implementation of several related legal acts. More recently, a list of Principal European Economic Indicators has been successfully established and largely implemented. In fact, it is fair to say that, whereas the euro area still lags behind the US in terms of the availability and timeliness of its general economic statistics, progress in the development of new statistics may have been the greatest in the EU. In addition, the new requirements that are currently investigated by the PEEIs Steering Group, augmented with those that will be put forward by the Economic Policy

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Committee, are less ambitious than the great leap forward of European statistics in the past decade. There are also no indications at present that the current, more modest list of new demands should be significantly expanded in the near future.

In general, the ECB’s DG-S plays the role of broker between the ECB users and the ESS producers of statistics. This is done in the context of the cooperation between the ESS and the ECB and the involvement of the latter as an observer in the Statistical Programme Committee and in various Eurostat Steering Groups, Working Groups and Task Forces.5 While it is recognised that the needs for ECB decision-making are typically quite ambitious, it should be highlighted that any unrealistic expectations of ECB users are already curtailed in advance by DG-S, which also tries to convert the remaining needs into achievable objectives for the ESS.

Besides, the ESCB demands for euro area statistics should be looked at in the right perspective, that is, it should be realised that they serve to prepare the monthly, independent monetary policy decisions for (currently) the largest economic area in the world, which operates in a floating exchange rate regime. These decisions must be taken and communicated in real time, based on all available, hopefully up-to-date information. The decisions are typically based on a) an economic analysis, which makes an intensive usage of ESS statistics, b) a monetary analysis, which is mostly based on ESCB statistics, and c) a cross-check of the outcome of the economic analysis with that of the monetary analysis, in which the quarterly euro area accounts may play a role, once they are compiled in a more timely fashion.

In this context, it is recalled that ESCB users are often content with the outcomes delivered on the basis of statistical tools used by the ESS to produce European aggregates such as European sampling (the main reason being that they deliver faster results without endangering the quality of the aggregates).

Last but not least, each year both Eurostat and the ECB are requested by the Economic and

Financial Committee (EFC) to produce the Status Report on Information Requirements in EMU [7]. Since these reports are subsequently endorsed by the ECOFIN Council, which unites the paymasters of the ESS, it may be worth considering how these Reports, including their reference to the need for adequate resources, can be best utilised by the ESS in its quest for the means to execute its work programme. For instance, a suggestion could be to prepare these reports earlier in the year so that

5 Analogously, Eurostat has an observer status in the ESCB Statistics Committee and its Working Groups and task forces and uses this setting to channel the demands of the Commission for statistics produced by the ESCB

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they are endorsed in June and possibly (more) instrumental in the preparations of annual work programmes and budget negotiations of the ESS.

In general, the annual statistical work programmes of the ESS might benefit from an explicit recognition of the ECOFIN’s policy use of ESS statistics through a more extensive reference to the

ECOFIN Conclusions on the EFC Status Reports [8].

5. References

[1] Stark, Jürgen (April 2008) The contribution of monetary and financial statistics to the conduct of monetary policy , Statement delivered at the 4th ECB Conference on Statistics “A strategic vision for statistics – Challenges for the next 10 years”, Frankfurt am Main, http://www.ecb.europa.eu/press/key/date/2008/html/sp080424_1.en.html

[2] European Central Bank (April 2008) ECB statistics: an Overview, http://www.ecb.europa.eu/ pub/pdf/other/ecbstatisticsanoverview2008en.pdf.

[3] European Central Bank (April 2008) The ECB Statistics Quality Framework and quality assurance procedures , http://www.ecb.europa.eu/stats/html/sqf.en.html.

[4] European Central Bank (July 2008), Medium-term work programme for the ECB statistical function, http://www.ecb.europa.eu/stats/html/workprogramme.en.html

[5] European System of Central Banks (May 2007), Public Commitment with respect to the ESCB’s statistical function , http://www.ecb.europa.eu/stats/html/pcstats.en.html.

[6] González-Páramo, José Manuel (3 July 2008), Die Europäische Zentralbank macht ihre Statistiken krisenfester , Börsenzeitung

[7] Economic and Financial Committee (October 2007), EFC 2007 Status Report on Information Requirements in EMU, http://www.ecb.europa.eu/stats/pdf/statusreport2007.pdf

[8] Council of the European Union (13 November 2007), Council Conclusions on 2007 Status Report , http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/97064.pdf

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