Franklin D. Berger

English

Research Papers in Economics

output falls so much, but rather that it falls
too little.
Because productivity plays a domi-
nant role during turbulent times, a first
step toward understanding the real
impact of crises is to explain why they
cause the average productivity of factors
to fall so much. Among many possible
explanations, productive resources tend
to be used less intensively during turbu-
lent times. High interest rates combined
with low productivity give firms strong
incentives to postpone the consumption
of capital services (for instance, by leav-
ing plants or machines temporarily idle)
and economize on variable expendi-
tures, such as wear and tear, until busi-
ness conditions improve. On the labor
side, firms may choose to hoard workers
during periods of low activity to econo-
mize on labor-adjustment costs. Some
recent investigations find that capital uti-
lization and labor hoarding can, in fact,
account for a nontrivial part of produc-
tivity movements during crises. 
Promising as these findings may be,
however, factor utilization is not likely to
fully explain the real impact of crises.
First, productivity continues to fall by an
unusual amount after controlling for
changes in factor utilization. Second,
some calculations suggest that models
with factor utilization also predict that
output should fall much more during
crises than what we observe.
2 The
demand for factors is more stable in
those models than in models with fixed
utilization, but this is offset by large
swings in utilization rates. 
Given the difficulties crises pose for
standard models, understanding the real
impact of financial crises is likely to
require some modeling of resource allo-
cation across sectors. For example,
employment started growing briskly in
Mexico’s export sector after the 1994
devaluation. The fall in productivity
could reflect transitory losses in the qual-
ity of labor as employees devote time to
learning new skills. This line of research
should shed much-needed light on the
real effects of crises and could yield new
explanations for two decades of lacklus-
ter growth in Latin America.
—Felipe Meza 
Erwan Quintin
Meza is an assistant professor at the Uni-
versidad Carlos III de Madrid. Quintin is
a senior economist in the Research
Department of the Federal Reserve Bank
of Dallas.
Notes
1 For similar evidence of other crisis episodes, as well as a survey of the
recent literature on financial crises, see “Financial Crises and Total
Factor Productivity,” by Felipe Meza and Erwan Quintin, Center for
Latin American Economics Working Paper No. 0105, March 22, 2005
(www.dallasfed.org/latin/papers/2005/lawp0501.pdf).
2 See Meza and Quintin (2005).
Mexican GDP Falls but No One Notices
T
wo years ago, we reported on 
these pages about difficulty in 
correctly interpreting Mexico’s
GDP reports.
1 The complication involves
Easter’s habit of moving around in the
Gregorian calendar. Sometimes this reli-
gious holiday occurs in the first quarter
and sometimes in the second. Because
economic activity is reduced in the quar-
ter in which Easter falls, when Easter
switches quarters from one year to the
next, the situation is ripe for the confu-
sion we pointed out earlier. 
Easter fell in the second quarter in
both 2003 and 2004, so last year the issue
was moot. This year, Easter fell in the
first quarter, leading to possible confu-
sion.
In the opening sentence of its statis-
tical release on Mexico’s second quarter
2005 gross domestic product, the Insti-
tuto Nacional de Estadística, Geografía e
Informática (INEGI, Mexico’s census
bureau) reports that GDP was 3.1 per-
cent greater than in the second quarter of
2004. This statistic is calculated from data
that have not been seasonally adjusted
and, in particular, have not been
adjusted for Easter’s wayward effects.
The report further notes that GDP
declined 0.42 percent in second quarter
2005 relative to first quarter 2005.
The year-over-year statistic is what
the Mexican report has historically head-
lined—and with good reason. Until
fairly recently, INEGI did not calculate,
or at least did not report, seasonally
adjusted statistics. When analyzing data
that are not seasonally adjusted but are
subject to seasonality, it is standard
operating procedure to look at year-
over-year changes. When seasonal ef-
fects are irregular with respect to the cal-
endar, such as Easter’s, the year-over-
year calculation is not valid when Easter
falls in different quarters in successive
years. In other words, INEGI’s lead sta-
tistic sometimes suffers from statistical
bias.
INEGI’s seasonal adjustment proce-
dure is sophisticated, taking full account
of the Easter effect. The seasonally
adjusted data have been purged of the
potentially distorting effect of Easter
moving around in the calendar. This
makes it possible to report meaningful
quarter-over-quarter statistics, which
INEGI does—but does not emphasize.
Although the main reason for emphasiz-
ing year-over-year changes has been
eliminated with INEGI’s now more
sophisticated approach to seasonal
adjustment, it may still be useful to cal-
culate such changes. But to be mean-
ingful, these changes must be calculated
from the seasonally adjusted data.
According to INEGI’s own seasonally
adjusted data, Mexico’s GDP grew 1.9
percent from second quarter 2004 to
second quarter 2005. INEGI’s reported
figure of 3.1 percent is biased upward
because Easter’s occurrence in second
quarter 2004 depressed that period’s
output.
In spite of the stumbling block
placed before them, analysts are often
able to make sense of the situation.
However, their reportage is often awk-
15 FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   SEPTEMBER/OCTOBER 2005ward and confusing. In one example of
many,  DismalScientist reports, “The
Mexican economy showed a rebound in
the second quarter, positively influenced
by the Easter holiday.”
2 Note that the ter-
minology “in the second quarter” is con-
fusing. One might think DismalScientist
is referring to growth between the first
and second quarters, but that is not the
case. It is referring to INEGI’s reported
growth of 2.4 percent from first quarter
2004 to first quarter 2005, compared with
3.1 percent from second quarter 2004 to
second quarter 2005. Such reportage is
typical of articles about Mexican GDP. In
other contexts, reporters often use the
expression “in the quarter” to mean “dur-
ing the quarter,” a more appropriate
usage.
According to INEGI’s seasonally
adjusted (and Easter-corrected) data,
GDP declined by 0.42 percent from first
to second quarter 2005. What sort of
“rebound” is this? Even the year-over-
year data show no rebound when cor-
rected for Easter. The year-over-year fig-
ures above for first- and second-quarter
growth (2.4 and 3.1 percent, respec-
tively) become 3.7 and 1.9 percent,
respectively. In other words, year-over-
year growth declined, primarily due to
severe slowing in the first quarter (0.18
percent) and an actual decline of 0.42
percent in the second quarter.
How much clearer to report, simply,
“After averaging growth of about 1 per-
cent per quarter in 2004, GDP growth
fell to 0.18 percent in the first quarter of
2005 and GDP declined 0.42 percent in
the second quarter.” There is no need to
mention Easter at all. 
—Franklin D. Berger
Berger is director of technical support
and data analysis in the Research
Department of the Federal Reserve Bank
of Dallas.
Notes
1 “(Mis)reporting Mexico’s Gross Domestic Product,” by Franklin D.
Berger, Federal Reserve Bank of Dallas Southwest Economy, Issue 5,
September/October 2003.
2 “Mexico: GDP,” by Alfred Coutino, in DismalScientist, August 16,
2005, www.economy.com/dismal/pro/blog.asp?cid=16827.
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Mexican GDP Falls
but No One Notices
(Continued from page 15)

Mexican GDP falls but no one notices

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Mexican GDP falls but no one notices

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