A Small Quarterly Multi-Country Projection Model, Issues 2008-2279
Ondra Kamenik, Ioan Carabenciov, International Monetary Fund. Research Dept, Igor Ermolaev, Charles Freedman, Dmitry Korshunov, Jared Laxton, Douglas Laxton, Michel Juillard
International Monetary Fund, Dec 1, 2008 - Business & Economics - 59 pages
This is the second of a series of papers that are being written as part of a larger project to estimate a small quarterly Global Projection Model (GPM). The GPM project is designed to improve the toolkit for studying both own-country and cross-country linkages. In this paper, we estimate a small quarterly projection model of the US, Euro Area, and Japanese economies. The model is estimated with Bayesian techniques, which provide a very efficient way of imposing restrictions to produce both plausible dynamics and sensible forecasting properties. We show how the model can be used to construct efficient baseline forecasts that incorporate judgment imposed on the near-term outlook.
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Extending the Model to Include FinancialReal Linkages
Confronting The Model with The Data
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18 Conditional 40 Figure aggregate demand available at www.imf.org bank lending tightening Bayesian estimation behavior beta beta beta beta beta bilateral BLTUs business cycle central bank coeﬂicient conditional forecast CPI Inﬂation cross correlations deﬁnes Demand shock developments distribution Prior mean disturbance term DSGE models equilibrium real interest estimated models euro area exchange rate gap expected ﬁnancial institutions ﬁnancial markets ﬁnancial variables ﬁnancial-real linkages ﬁrst future papers gamm IMF Working Paper impulse response functions increase Inf Inf Inf invg invg invg Japan judgmental input July 18 July 18 Unconditional Laxton lending conditions lending tightening variable loans macro model NAIRU nominal interest rate output gap equation potential output growth Prior mean Prior Prior s.d. Posterior quarterly projection model rate of inﬂation real exchange rate real interest rate reﬂect shock to potential small quarterly projection speciﬁcation standard deviation structural shocks three economies unemployment gap unemployment rate United weight Year-on-Year