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Business and Economics > Production and Operations Management

You are looking at 1 - 9 of 9 items for :

  • Type: Journal Issue x
  • Econometric Modeling: General x
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Cover IMF Working Papers
Mending the Crystal Ball: Enhanced Inflation Forecasts with Machine Learning
Yang Liu
,
Ran Pan
, and
Rui Xu
Forecasting inflation has become a major challenge for central banks since 2020, due to supply chain disruptions and economic uncertainty post-pandemic. Machine learning models can improve forecasting performance by incorporating a wider range of variables, allowing for non-linear relationships, and focusing on out-of-sample performance. In this paper, we apply machine learning (ML) models to forecast near-term core inflation in Japan post-pandemic. Japan is a challenging case, because inflation had been muted until 2022 and has now risen to a level not seen in four decades. Four machine learning models are applied to a large set of predictors alongside two benchmark models. For 2023, the two penalized regression models systematically outperform the benchmark models, with LASSO providing the most accurate forecast. Useful predictors of inflation post-2022 include household inflation expectations, inbound tourism, exchange rates, and the output gap.
Keywords:
Core inflation; forecasting; machine learning models; LASSO; Japan; household inflation expectation; forecasting inflation; machine learning method; Annex I. machine learning; enhanced inflation; Inflation; Machine learning; Econometric models; Output gap
Cover Technical Notes and Manuals
User Manual for the DIGNAD Toolkit
Mr. Zamid Aligishiev
,
Cian Ruane
, and
Azar Sultanov
This note is a user’s manual for the DIGNAD toolkit, an application aimed at facilitating the use of the DIGNAD model (Debt-Investment-Growth and Natural Disasters) by economists with no to little knowledge of MATLAB and Dynare via a user-friendly Excel-based interface. DIGNAD is a dynamic general equilibrium model of a small open economy developed at the International Monetary Fund. The model can help economists and policymakers with quantitative assessments and policy scenario analysis of the macrofiscal effects of natural disasters and adaptation infrastructure investments in low-income developing countries and emerging markets. DIGNAD is tailored to disaster-prone countries, which typically are small countries or low-income countries that are particularly exposed to large climate shocks—countries where shocks that can disrupt the entire economy are frequent. However, DIGNAD can be relevant also for larger countries that may potentially be exposed to extreme climatic disasters in the future.
Keywords:
natural disasters; adaptation; resilient infrastructure; public investment; public investment efficiency; debt sustainability; DIGNAD toolkit; IMF copyright; DIGNAD model; GNU General Public License; third-party software; Infrastructure; Public investment spending; Total factor productivity; Depreciation; Sub-Saharan Africa
Cover IMF Working Papers
Reading the Stars
Peter D. Williams
,
Mr. Yasser Abdih
, and
Emanuel Kopp
Following the global financial crisis, significant uncertainty has existed around the U.S. economy’s steady state equilibrium. This paper uses a factor model to provide a new approach to estimating “the stars” (i.e. the neutral interest rate, maximum employment, and the level and growth rate of potential output) that are most consistent with a medium-term equilibrium where inflation converges to the FOMC’s two percent target. It is applicable to any country with an inflation targeting central bank. It also explicitly incorporates estimates of the extensive margin of slack in the labor market, which has proven to be an important factor in describing the post-financial crisis landscape.
Keywords:
WP; output gap estimate; PCE inflation; inflation gap; inflation expectation; output gap estimation certainty
Cover IMF Working Papers
Understanding Euro Area Inflation Dynamics: Why So Low for So Long?
Mr. Yasser Abdih
,
Ms. Li Lin
, and
Anne-Charlotte Paret
Despite closing output gaps and tightening labor markets, inflation has remained low in the euro area. Based on an augmented Phillips Curve framework, we find that this phenomenon—sometimes attributed to low global inflation—has been primarily caused by a remarkable persistence of inflation, keeping it low despite the reduction in slack. This feature is shown to be specific to the euro area (in comparison with the United States). Monetary policy needs to stay accommodative to help guide inflation back to target.
Keywords:
WP; inflation expectation; inflation dynamics; inflation process; inflation puzzle; Inflation; Phillips curve; inflation persistence and expectations; Euro area inflation; core HICP inflation; inflation development; Inflation persistence; Labor markets; Import prices; Output gap; Global; understanding Euro area inflation dynamics; stickier inflation
Cover IMF Working Papers
An Open Economy Quarterly Projection Model for Sri Lanka
Chandranath Amarasekara
,
Rahul Anand
,
Kithsiri Ehelepola
,
Hemantha Ekanayake
,
Vishuddhi Jayawickrema
,
Sujeetha Jegajeevan
,
Csaba Kober
,
Tharindi Nugawela
,
Sergey Plotnikov
,
Adam Remo
,
Poongothai Venuganan
, and
Rasika Yatigammana
This study documents a semi-structural model developed for Sri Lanka. This model, extended with a fiscal sector block, is expected to serve as a core forecasting model in the process of the Central Bank of Sri Lanka’s move towards flexible inflation targeting. The model includes a forward-looking endogenous interest rate and foreign exchange rate policy rules allowing for flexible change in policy behavior. It is a gap model that allows for simultaneous identification of business cycle position and long-term equilibrium. The model was first calibrated and then its data-fit was improved using Bayesian estimation technique with relatively tight priors.
Keywords:
WP; monetary policy; exchange rate; Sri Lanka; Quarterly Projection Model; Forecasting and Policy Analysis System; Flexible Inflation Targeting; nominal interest rate; excess demand; rule equation; open economy; inflation expectation; Sri Lankan economy; administered energy inflation; transport inflation; world oil price dynamics; energy inflation; headline inflation; Sri Lankan inflation; Inflation; Exchange rates; Real exchange rates; Inflation targeting; Global
Cover IMF Working Papers
Performance of Fiscal Accounts in South Africa in a Cross-Country Setting
Burcu Aydin
This paper analyzes the cyclical fluctuations in South Africa in a cross-country context, and studies the impact of the output gap by controlling for export intensity, the debt burden, asset prices, and banking crises. Results show that South Africa’s revenue performance was outstanding during the mid-2000s, and the recent decline in revenue was one of the least among the emerging and advanced markets. Results on the elasticity of tax revenue show that South Africa’s elasticity is higher during business upturns, indicating good prospects for recovering the revenue lost during the global financial crisis.
Keywords:
WP; financial crisis; South Africa; structural balance; panel data; revenue performance; elasticity of revenue; output-gap dummy; revenue gap; revenue elasticity; revenue trend; output gap point; heterogenous elasticity coefficient; Output gap; Business cycles; Emerging and frontier financial markets; Global financial crisis of 2008-2009; Africa; Global
Cover IMF Working Papers
Cyclicality of Revenue and Structural Balances in South Africa
Burcu Aydin
This paper applies a disaggregated method for the calculation of the cyclical component of the budget balance for South Africa with an emphasis on the effect of commodity and asset prices, and credit cycle. Results show that the cyclicality of tax revenue is mostly explained by the variations in tax bases. Change in the credit to private sector also has some affect on the revenue performance; however, asset and commodity prices are not significant in explaining the deviation of revenue from its trend. Nonetheless, quantitative effects of these prices are subject to assumptions used for long-run price levels.
Keywords:
WP; tax revenue; South Africa; structural balance; credit growth; commodity and asset prices; revenue performance; price deflator; cyclical revenue fluctuation; tax revenue regression; revenue cycle; revenue data; aggregate revenue; Fiscal stance; Asset prices; Output gap; Commodity prices; Africa
Cover IMF Working Papers
Financial Development and Economic Growth: An Economic Analysis for Singapore
Mr. Lamin Y Leigh
With the emergence of the rapidly expanding literature on endogenous growth, the relationship between financial development and economic growth has received a new source of inspiration. Recent cointegration techniques that focus on the estimation and the identification of long-run economic relationship(s) between data variables are particularly appropriate to the study of long run endogenous growth models. This paper has applied these techniques to the Singapore data using a supply-side framework. By and large, the econometric analysis in this paper has yielded results that are in line with predictions of endogenous growth models. In particular, we find that financial development positively affects both transitional and long-run growth in Singapore.
Keywords:
WP; production function; physical capital; growth model; aggregate production function; Singapore economy; standard error; growth equation model; output equation; Financial sector development; Human capital; Total factor productivity; Foreign direct investment; Asia and Pacific; Eastern Europe
Cover IMF Working Papers
Real and Nominal Exchange Rates in the Long Run
Mr. Charles Adams
and
Mr. Bankim Chadha
This paper decomposes longer-run movements in (major) dollar real exchange rates into components associated with changes in nominal exchange rates and price levels, and their comovements. Though the decompositions suggest some permanent movements, they imply that there are large transitory components in real exchange rates. These transitory components in real exchange rates are found to be closely associated with those in nominal exchange rates. A stochastic version of Dornbusch’s overshooting model—configured with representative parameter values for the United States and subjected to permanent nominal shocks—can rationalize these transitory comovements of nominal and real exchange rates as well as several other features of the decompositions.
Keywords:
WP; nominal exchange rate change; nominal exchange rate; price change; real exchange rate; price level change; exchange rate movement; nominal exchange rate line; Real exchange rates; Exchange rate adjustments; Exchange rates; Purchasing power parity; Capacity utilization