Recent developments in the sphere of international economic policy coordination produced an agreement at the May 1986 Tokyo Summit that the major countries should focus on a set of economic indicators as a means of strengthening the degree of cooperation in macroeconomic policymaking already in existence. The Fund was given the formal responsibility for carrying this suggestion forward. In the subsequent development of this idea (see. in particular, Crockett and Goldstein (1987)), emphasis has been given to a taxonomy of indicators of current economic developments, distinguishing those which are signals of policy posture from those which measure intermediate variables, and which in turn are distinguished from those measuring economic performance. Indicators may be used in a number of ways. On a rising scale of increasing international interdependence, they may provide individual countries with a checklist of variables against which to monitor the short-run progress of their economies; they may provide information on the medium-run sustainability of policies; and they may signal in a formal way the need for multilateral discussion of policies.
Masson Paul, Mr. Steven A. Symansky, Mr. Richard D Haas, and Mr. Michael P. Dooley
MULTIMOD (MULTI-region econometric MODel) has been designed to improve the analysis of the effects of industrial country policies on major macro-economic variables, both in the developed and developing worlds.1 It is a continuation of modeling work undertaken at the Fund in recent years, in particular work on the World Trade Model (Spencer (1984)) and MINIMOD (Haas and Masson (1986)), and it supplements individual country and sectoral models, as well as detailed analysis and monitoring performed by country economists. The focus of the model is on the transmission of policy effects, and in this respect therefore it accords well with the Fund’s surveillance over the policies of major countries. More generally, the model can be used to trace the effects of changes in the external environment on the economies of developed and developing countries. To a limited extent, the model can also be used to evaluate policies that developing countries might choose in order to improve their outcomes, for instance, through shifting demand away from consumption and toward investment. However, their monetary and fiscal policy instruments are not at present explicit in the model. The model has not been designed to make unconditional or “baseline” forecasts, nor will it be used for this purpose. Instead, the model has been designed to develop a judgmental baseline forecast that incorporates the detailed knowledge of country economists, and to examine the effects on that baseline of scenarios that involve changes in policies in major countries and other exogenous changes in the economic environment.
This paper examines the World Economic Outlook forecasting record for the principal performance indicators for the major industrial countries and corresponding aggregates and for groups of non-oil developing countries. Several criteria were used in evaluating the forecasts: the computation and evaluation of various summary statistics of forecast accuracy, bias, and efficiency; comparisons with alternative forecasts—naive forecasts and forecasts produced by the Organization for Economic Cooperation and Development (OECD) and by national forecasting agencies; the examination of turning-point errors and forecast performance in defined episodes; and, finally, some attempt to explain forecast error in terms of unanticipated developments in policy variables and oil prices. In judging the forecast performance of the World Economic Outlook, a number of points must be kept in mind. Most important, it has to be recognized that the period since the inception of the World Economic Outlook as a regular forecasting exercise has been extraordinarily rich in economic upheavals, which have made the odds against accurate forecasting formidable.