By: Nghiinomenwa-vali Hangala
Non-traditional data is often timelier or more granular and, as a result, can fill in some gaps in government statistics, wrote former principal economist at the Federal Reserve Board of Governors, Claudia Sahm, on the International Monetary Fund website.
She said non-traditional data can also provide an added perspective on critical economic outcomes, such as employment, and it should be viewed as a complement to traditional data in informing policy, not as a substitute.
Economic decisions by policymakers on key issues such as policy direction, monetary policy, and sectoral decisions can be shaped through combining the two methods.
Namibia is at a juncture with decisions being taken within various sectors, and a number of legislative Bills being drafted.
Commenting on monetary policy decisions, Sahm noted that the central focus of monetary policy is stabilisation of the business cycle, “so there is a premium on accurately and quickly assessing turning points.”
She reiterated that non-traditional data can be particularly helpful in monetary policy decisions. That is because government statistics on key variables like unemployment, inflation, and economic growth are published weeks or even months after the fact.
The timeliness of alternative data sources was particularly useful at the start of the pandemic, which triggered a short, deep recession.
Namibia’s most frequently released datasets include trade statistics, inflation figures, and private sector credit extension updates. However, updated data on employment is barely available on a timely basis.
Sahm added that high-quality, timely data is critical to making sound monetary policy.
“If policymakers see signs of higher inflation, for example, they may consider raising interest rates to cool the economy. But if the job market appears to be weakening, they may consider lowering rates to spur economic activity,” she said.
To this, she added that it takes time for changes in interest rates to affect economic outcomes, so speed in accurately assessing the direction of the economy is also important for effective policy.
To keep a finger on the pulse of the economy in real time, central banks such as the Bank of Namibia (BoN) rely on a wide array of statistics generated by government agencies such as the Namibia Statistics Agency.
BoN has supplemented these statistics with non-traditional sources of data, often supplied by private companies.
Sahm also noted that alternative data can help maintain, and even improve, the quality and cost-effectiveness of traditional statistics. To this, she said in the absence of critical datasets, central bank estimations and decisions can lack precision.
“This loss of precision can create uncertainty about inflation or employment dynamics and hinder a timely, appropriate monetary policy response,” she wrote.
Sahm explained that non-traditional data, coupled with private company data, offers a potential solution as opposed to surveys of several components of the consumer price index, including the prices of used cars, airline tickets, and wireless telephone contracts.
Sahm concluded by stressing that although non-traditional data sources have their advantages, they ought not to be treated as a replacement for the traditional kind.
