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Business and Economics > Production and Operations Management

You are looking at 1 - 10 of 17 items for :

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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 Regional Economic Outlook, Middle East and Central Asia, October 2023
Regional Economic Outlook, Middle East and Central Asia, October 2023
Building Resilience and Fostering Sustainable Growth
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Across the Middle East and Central Asia, the combined effects of global headwinds, domestic challenges, and geopolitical risks weigh on economic momentum, and the outlook is highly uncertain. Growth is set to slow this year in the Middle East and North Africa region, driven by lower oil production, tight policy settings in emerging market and middle-income economies, the conflict in Sudan, and other country-specific factors. In the Caucasus and Central Asia, although migration, trade, and financial inflows following Russia’s war in Ukraine continue to support economic activity, growth is set to moderate slightly this year. Looking ahead, economic activity in the Middle East and North Africa region is expected to improve in 2024 and 2025 as some factors weighing on growth this year gradually dissipate, including the temporary oil production cuts. But growth is expected to remain subdued over the forecast horizon amid persistent structural hurdles. In the Caucasus and Central Asia, economic growth is projected to slow next year and over the medium term as the boost to activity from real and financial inflows from Russia gradually fades and deep-seated structural challenges remain unsolved. Inflation is broadly easing, in line with globally declining price pressures, although country-specific factors—including buoyant wage growth in some Caucasus and Central Asia countries—and climate-related events continue to make their mark. Despite some improvement since April, the balance of risks to the outlook remains on the downside. In this context, expediting structural reforms is crucial to boost growth and strengthen resilience, while tight monetary and fiscal policies remain essential in several economies to durably bring down inflation and ensure public debt sustainability.

Keywords:
growth; inflation; public debt; external financing; commodity prices; structural reforms; investment; labor productivity; financial stability; stress testing; governance reform; GCC country; credit market reform; government effectiveness; reform package; Policy space; Emerging and frontier financial markets; Credit; Labor force participation; Middle East and Central Asia; Central Asia and the Caucasus; Middle East; North Africa; oil exporter; IMF staff calculation; CCA bank; sovereign-bank nexus; Fiscal stance; Current account balance; Commercial banks; Oil exports; Global
Cover IMF Working Papers
Modeling and Forecasting Monthly Tourism Arrivals to Aruba Since COVID-19 Pandemic
Olga Bespalova
This paper improves short-term forecasting models of monthly tourism arrivals by estimating and evaluating a time-series model with exogenous regressors (ARIMA-X) using a case of Aruba, a small open tourism-dependent economy. Given importance of the US market for Aruba, it investigates informational value of Google Searches originating in the USA, flight capacity utilization on the US air-carriers, and per capita demand of the US consumers, given the volatility index in stock markets (VIX). It yields several insights. First, flight capacity is the best variable to account for the travel restrictions during the pandemic. Second, US real personal consumption expenditure becomes a more significnat predictor than income as the former better captured impact of the COVID-19 restrictions on the consumers’ behavior, while income boosted by the pandemic fiscal support was not fully directed to spending. Third, intercept correction improves the model in the estimation period. Finally, the pandemic changed econometric relationships between the tourism arrivals and their main determinants, and accuracy of the forecast models. Going forward, the analysts should re-estimate the models. Out-of-sample forecasts with 5 percent confidence intervals are produced for 18 months ahead.
Keywords:
Econometric Modeling; Forecasting; tourism; arrivals; tourist arrivals; Google Trends; flight capacity utiilization; load factor; time-series models; time-series econometrics; arima; Aruba; Covid-19; Pandemic; tourism arrival; arrivals to Aruba; Aruba tourism authority; time-series model; IMF working papers; consumption expenditure; Capacity utilization; Unemployment rate; Caribbean
Cover Departmental Papers
Taking Stock of IMF Capacity Development on Monetary Policy Forecasting and Policy Analysis Systems
Nils Mæhle
,
Tibor Hlédik
,
Mikhail Pranovich
,
Carina Selander
, and
Mikhail Pranovich
This paper takes stock of forecasting and policy analysis system capacity development (FPAS CD), drawing extensively on the experience and lessons learned from developing FPAS capacity in the central banks. By sharing the insights gained during FPAS CD delivery and outlining the typical tools developed in the process, the paper aims to facilitate the understanding of FPAS CD within the IMF and to inform future CD on building macroeconomic frameworks. As such, the paper offers a qualitative assessment of the experience with FPAS CD delivery and the use of FPAS in the decision-making process in central banks.
Keywords:
Forecasting and Policy Analysis System; FPAS; Central Banks; policy analysis system; monetary policy forecasting; IMF Library; capital markets department; FPAS capacity; Central bank policy rate; Exchange rates; Market interest rates; Output gap; Inflation; Sub-Saharan Africa; Europe; Africa
Cover IMF Working Papers
How to Improve Inflation Forecasting in Canada
Mr. Troy D Matheson
Against the backdrop of an ongoing review of the inflation-targeting framework, this paper examines the real-time inflation forecasts of the Bank of Canada with the aim of identifying potential areas for improvement. Not surprisingly, the results show that errors in forecasting non-core inflation (commodity prices etc.) are found to be the largest contributors to overall inflation forecast errors. Perhaps more importantly, relatively small core inflation forecast errors appear to mask large and offsetting errors related to the output gap and the policy interest rate, partly reflecting a tendency to overestimate the neutral nominal policy rate in real time. Faced with these uncertainties, the Governing Council’s gradual approach to changing its policy settings appears to have served it well.
Keywords:
WP; core inflation; inflation expectation; forecasting performance; staffs core inflation error; inflation target; forecasting inflation; higher-than-expected inflation; Inflation; Central bank policy rate; Output gap; Inflation targeting; Global
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
Explaining Inflation in Colombia: A Disaggregated Phillips Curve Approach
Mr. Sergi Lanau
,
Adrian Robles
, and
Mr. Frederik G Toscani
We study inflation dynamics in Colombia using a bottom-up Phillips curve approach. This allows us to capture the different drivers of individual inflation components. We find that the Phillips curve is relatively flat in Colombia but steeper than recent estimates for the U.S. Supply side shocks play an important role for tradable and food prices, while indexation dynamics are important for non-tradable goods. We show that besides allowing for a more detailed understanding of inflation drivers, the bottom-up approach also improves on an aggregate Phillips curve in terms of forecasting ability. In the baseline forecast scenario, both headline and core inflation converge towards the Central Bank’s inflation target of 3 percent by end-2018 but these favorable inflation dynamics are vulnerable to large supply shocks.
Keywords:
WP; headline inflation; core inflation; Phillips curve; Inflation Components; Forecast; Colombia; inflation expectation; food inflation; education inflation; CPI inflation regression; world inflation; tradable inflation; fuel price inflation; output gap shock; Phillips curve coefficient; baseline inflation; Inflation; Output gap; Exchange rates; Consumer price indexes; Global
Cover IMF Working Papers
Growth: Now and Forever?
Giang Ho
and
Mr. Paolo Mauro
Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the baseline forecasts are more optimistic than warranted by past international growth experience. Further, by comparing the IMF’s World Economic Outlook forecasts with actual growth outcomes, we show that optimism bias is greater the longer the forecast horizon.
Keywords:
WP; economic growth; country; growth rate; economic growth forecast; growth forecast; optimism bias; forecast horizon; debt sustainability analysis; World Bank DSA exercise; IMF engagement status; teams' baseline forecast; per capita income; IMF definition; standard deviation; Personal income; Output gap; Western Hemisphere; Sub-Saharan Africa; Global
Cover IMF Working Papers
Understanding DSGE Filters in Forecasting and Policy Analysis
Michal Andrle
This paper introduces methods that allow analysts to (i) decompose the estimates of unobserved quantities into observed data, (ii) to better understand revision properties of the model, and (iii) to impose subjective prior constraints on path estimates of unobserved shocks in structural economic models. For instance, a decomposition of the flexible-price output gap, or a technology shock, into contributions of output, inflation, interest rates, and other observed variables' contribution is feasible. The intuitive nature and analytical clarity of the suggested procedures are appealing for policy-related and forecasting models.
Keywords:
WP
Cover IMF Working Papers
Forecasting U.S. Investment
Mr. Pau Rabanal
and
Mr. Jaewoo Lee
The driving force of U.S. economic growth is expected to rotate from the fiscal stimulus and inventory rebuilding in 2009 to private demand in 2010, with consumption and particularly investment expected to be important contributors to growth. The strength of U.S. investment will hence be a crucial issue for the U.S. and global recovery. On the basis of several traditional models of investment, we forecast that the U.S. investment in equipment and software will grow by about 10 percent on average over the 2010-12 period. The contribution of investment to real GDP growth will be 0.8 percentage points on average over the same period.
Keywords:
WP; investment; ratio; E&S; cost of capital; real GDP