Macro-Fiscal Forecasting

Macro-Fiscal Forecasting

Sami

Yl

ä

outinen

Fiscal Affairs Department (IMF) & METAC

Workshop on MTFF

December 16

th

–19

th

, 2014, Beirut, Lebanon

Macro-Fiscal ForecastingOutline of Presentation

Why macroeconomic forecastingEnsuring consistencyEnsuring credibilityStatistics and time seriesHow to organize forecastingConclusion

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I. Why Macro-Fiscal Forecasting? Motivation

Where we are now? – nowcastingWhere we are going? – forecastingshort-run (6-24 months)medium-run (2-5 years)long-run (5+ years)From cycle through convergence to potentialFrom demand side to supply sideFrom fixed to endogenous structuresEssential information for decision making and policy planning

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I. Why Macro-Fiscal Forecasting? Decision making

Forecasts assess the impact of actions which is materialized with lags.Forecasts tackle the inherent uncertainty and assess risks.Framework which draws together relevant information and spells out the costs, benefits and risks associated with economic agents behavior.

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I. Why Macro-Fiscal Forecasting? Policy planning

Stabilization policiesAutomaticDiscretionaryStructural policiesSocial benefits and incentivesInnovation and investments – National Vision 2030Market failures

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IV. Macroeconomic and Fiscal Forecasts Policy planning

Distributional policiesSocial transfersIncome equalization through taxesSustainabilityGrowth potential in the long run – National Vision 2030DemographicsFiscal position to guarantee sustainability and fiscal spaceScenarios and sensitivity testing

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II. Ensuring Consistency

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Political biasGood economic performance suggests successful policiesStrong growth leads to additional revenueThe ‘shoot the messenger’ syndromeInformational biasExcess burden of taxationIndependent input can help overcoming biased forecasts

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III. Ensuring CredibilitySystematic Overestimation of Performance

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III. Ensuring Credibility Transparency

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III. Ensuring CredibilityAddressing Bias

Prudency factorPanel forecastBenchmark forecastsIndependent forecastsCanadaChileNetherlandsSwedenUK

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IV. Statistics and Time SeriesNational Accounts

Statistical standardsNational System of AccountsGFSRelease calendarLevel of detailDecomposition of GDPPrice statisticsBalance of paymentsDemographic statisticsStatistical integrity

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V. How to Organize ForecastingPossible macro-fiscal entities

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V. How to Organize Forecasting The Functional Departments Model

Macroanalysis is done by an Economics Affairs DepartmentExpenditure forecasting and analysis is the responsibility of the Budget Department

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V. How to Organize Forecasting The Functional Departments Model

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ConsistencyUnambiguous and clearly defined responsibilities2. UpdatesCoordination of forecastingCommunication and coordination across departments3. Informed policy formulation/The need for fiscal analysis can be reflected in the organization… but coordination with revenue and budget dep’t needed4. Integrity and unbiasednessChecks and balancesProfessional integrity

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V. How to Organize Forecasting The Macro-Fiscal Unit Model

Macro-fiscal consistency is ensured by organizing all functions into one unitPooling of resources and a center of excellence for macro-fiscal issuesClose coordination with the budget and revenue department is crucial

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V. How to Organize Forecasting The Macro-Fiscal Unit Model

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Consistency/One source of macro-forecasts… but fiscal assumptions have to be coordinated2. Updates/Iteration of macro and fiscal are done within the unit… but requires access to updated info on new policies3. Informed policy formulation/Good conditions for preparing fiscal policy recommendations… but actual implementation demands coordination4. Integrity and unbiasednessCenter for macro-fiscal analysis

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VII. Conclusion

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