By Mohammad Altaf Ul Alam, PhD Deputy Secretary Macroeconomic Wing - - PowerPoint PPT Presentation

By Mohammad Altaf‐Ul‐Alam, PhD Deputy Secretary Macroeconomic Wing Finance Division, Ministry of Finance

Outline

 Institutional Framework for Macroeconomic

Modelling

 Current Modelling/Forecasting framework  Recent Forecasting Experiences  Challenges and Difficulties faced by Policy Makers  Advanced macroeconomic modelling initiative  Comments

Institutional Framework

 By law, at least two meetings are held generally in

every fiscal year presided over by the Minister, Ministry of Finance.

 Meeting is called ‘Coordination Council Meeting’

attended by Commerce Minister and around 10 secretaries of the ministries related to economics, finance and commerce.

Institutional Framework (Con’t)



World economic situation, real sector, fiscal sector, monetary sector and external sector are discussed thoroughly in the meeting.

• Macroeconomic wing prepares the primary

forecasting scenario, then basically value judgemental and technical issues are addressed in the meeting and forecast of macroeconomic variables are finalized.

• A mid‐term (3 year) forecasting is finalized. Every

six months in the next meeting forecast are revisited and if necessary revised.

Bangladesh GDP Movement

Current Model

• Objective of the model is to do macroeconomic

analysis and forecasting.

• It is an excel based analysis, the model was

primarily taken from IMF then customized with the country perspective.

• Model includes four basic sectors of the economy

and their interlinkages. These are real, fiscal, monetary and external sectors.

Current Model

Indicator Actual Actual Budget Projection Projection Projection

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Bill Tk. Bill Tk. Bill Tk. Bill Tk. Bill Tk. Bill Tk. Nominal GDP (bn Taka) 13437 15136 17167 19500 22147 25186 Nominal Growth (%) 12.1 12.6 13.4 13.6 13.6 13.7 Nominal GDP (bn Dollar) 172.9 195.0 220.3 243.7 276.8 314.8 Nominal GNI (bn Dollar) 184.4 207.5 235.8 260.1 295.5 336.3 Net factor income (bn Dollar) 11.5 12.5 15.5 16.4 18.6 21.5 Real GDP Growth (%) 6.06 6.51 7.0 7.2 7.4 7.6 Deflator (% change) 5.7 5.8 6.1 6.1 5.9 5.9 Inflation (%) 7.4 6.5 6.2 6.0 5.8 5.7 Percapita GNI ( USD) 1184 1314 1474 1604 1798 2020

Procedure (1)

 There are 15 sectors in the economy to calculate GDP.  Sectoral growth we put exogenously taking trend or

moving average or sometime considering value judgment.

 GDP deflator 2016 = Actual GDP deflator

2015*(1+Forecasted growth of deflator in 2016 i.e. Inflation)

 Real GDP 2016= Actual Real GDP 2015*(1+Forecasted

GDP growth rates)

 Nominal GDP 2016= Real GDP 2016* deflator 2016  GDP growth rate are forecasted based on trend

analysis and value judgement

Procedure (2)

 Basically using some simple procedure we put values of

exogenous variables in the model.

 Fiscal expenditures are like policy variables so we put

exogenously.

 For revenue income we have assumptions on different

tax/GDP ratios basicaly based on elasticities.

 Lot of such procedures we follow for other variables.

Recent Initiative

 We are now trying to develop a macroeconometric

forecasting model.

 It is based on econometric analysis  Calculations are done in Eviews  At present the model is very simple model. We shall

extend it further.

Data and Methodology

 Data range is 1981 to 2014  Data are low frequency data ‐ annual.  Data sources are Bangladesh Bureau of Statistics,

Ministry of Finance and Bangladesh Bank.

 At present it is a macroeconometric model (Error

Correction Model).

 Only demand side equations are considered in the

model due to data unavailability of supply side variables.

Model Equations

dum yd con pc

t t

   log log

Short‐run equation ) 1 ( _ log log      pc ecm dum yd d con pc d

t t

Private Consumption Long‐run equation Private Investment

t t t

tradeopen pinv con pinv log log log

1 

 



Long‐run equation Short‐run equation

1 1

_ log log log

 

   

t t t t

pinv ecm tradeopen pinv d con pinv d

Model Equations (2)

Exports Long‐run equation dum price worldGDP con

t t t

    exp exp log Short‐run equation

1

exp _ exp log exp log



    

t t t t

ecm dum price worldGDP d con d Import Long‐run equation

t t t

imp price GNI con imp _ log log    Short‐run equation

1

_ _ log log log



   

t t t

imp ecm imp price d GNI d con imp d

Model Equation(3)

Identity

t t t t t t t t

y discrepanc imp inv pub con pub pinv pc GDP        exp _ _ Endogenous Variables

GDP, Private Consumption, Private Investment, Export and Import

Exogenous Variables

All other variables in those equations Then model is solved in E‐views with dynamic solution. The model shows different growth rates than our Medium term outlook. It is respectively 6.7, 7.2 ,6.7 and 7.2 percent in 2016, 2017,2018 and 2019.

Comments

 Forecasting process is not yet highly technical.  We need a better model for the management of

macroeconomic and financial indicators.

 Sustainable development goals are not yet integrated

in our macroeconometric forecasting model.

 In fact we came here to learn that.