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Marijn A. Bolhuis and Brett Rayner
We leverage insights from machine learning to optimize the tradeoff between bias and variance when estimating economic models using pooled datasets. Specifically, we develop a simple algorithm that estimates the similarity of economic structures across countries and selects the optimal pool of countries to maximize out-of-sample prediction accuracy of a model. We apply the new alogrithm by nowcasting output growth with a panel of 102 countries and are able to significantly improve forecast accuracy relative to alternative pools. The algortihm improves nowcast performance for advanced economies, as well as emerging market and developing economies, suggesting that machine learning techniques using pooled data could be an important macro tool for many countries.
Mr. Balazs Csonto, Yuxuan Huang, and Mr. Camilo E Tovar Mora
This paper examines the extent to which digitalization—measured by a new proxy based on IP addresses allocations per country—has influenced inflation dynamics in a sample of 36 advanced and emerging economies over 2000-2017. Phillips curve estimates show that digitalization has a statistically significant negative effect on inflation in the short run. Its economic impact is not large but has increased since 2012 and mainly operates through a cost/competition channel. Principal components and cointegration analysis further suggest digitalization is a key driver of lower trend inflation.
IMF Research Perspective (formerly published as IMF Research Bulletin) is a new, redesigned online newsletter covering updates on IMF research. In the inaugural issue of the newsletter, Hites Ahir interviews Valeria Cerra; and they discuss the economic environment 10 years after the global financial crisis. Research Summaries cover the rise of populism; economic reform; labor and technology; big data; and the relationship between happiness and productivity. Sweta C. Saxena was the guest editor for this inaugural issue.
International Monetary Fund. European Dept.
This paper highlights the fact that to address the challenge of declining working age population, policies should not only aim to support fertility, but also to increase labor force participation rate, to improve labor allocation across sectors and to encourage net immigration. However, with some recent measures going in the opposite direction, even such mitigating policies may not fully offset the demographic headwinds. Poland faces profound demographic changes. The decline of fertility rate and growing life expectancy, mostly driven by longevity of older cohorts, will significantly change the demographic landscape. Demographics may soon pose a barrier for growth. The historical expansion of working age population appears to have been only partly utilized to boost potential growth, with increased unemployment and declined labor force participation rates dampening potential gains. Net migration was also a drag on the labor supply in the past, but this has changed recently. In addition to a steady outflow of permanent migrants, there was a sharp pickup in temporary migration after EU accession.