kosticky •1 •Short- to medium term forecasting • • •David Havrlant •Macroeconomic Forecasting Division •Near Term Forecasting Unit (NTF) • • david.havrlant@cnb.cz • OPVK_MU kosticky •2 Objectives of the Presentation •Role of NTF within the macroeconomic projection exercise •Importance of coherent framework •Interpreting economic development in a consistent way •Brief insight into particular forecasting procedures kosticky •3 Main NTF Tasks •Experts as regards the Czech economy •Empirical data, structures, institutional and regulation framework •Based on theoretical background consistent with •Conduct of MP within IT regime •Usage of the core projection model (G3) •Discussion on initial state of the economy •Comparative benchmark for core model projection •Providing disaggregated economic outlook •Cyclical decomposition of the variables •Research activities • kosticky •4 Points of view •One model is risky - set of methods is better •Economic theory as basis of analysis •Emphasis on statistical data •Respecting not only economic theory, but also statistical data •Expert approach : possible corrections •Structural changes in economy •Theory vs. measurements •Revisions of data • • kosticky •5 Near Term Forecast (NTF) •Conditional forecast •Foreign macroeconomic outlook from The Consensus Forecast •CPI, PPI, GDP – effective indices (relevance for Czech economy) •World energy and food prices, exchange rate USD/EUR •Standardized source – no arbitrarily changes, potential for alternative scenarios •Near term forecast – 1Q, 2Q ahead with high precision •Empirical check in mid-term horizon for the core model kosticky •6 NTF - Per Partes •Labour market •Employment, unemployment •Economic productivity •Average wage •Wage bill • • •Other Prices •Import prices •Terms of trade •Producer prices •Real economic activity •Domestic demand •Exports, imports, net export •GDP •Trade balance •Current account • •Consumer prices •Main components of the consumer basket kosticky •7 Consistence through Iteration •NTF is in principle not an interconnected system •Threat of inconsistency of the complex forecast •Consistence is achieved through: •Quasi-interconnection •One forecast is the input of other forecasts •Iteration •Consistency check •New forecasting round if necessary •Race against time kosticky •8 Multistage Forecast •Data •Forecast 1 •Consumer prices •Labour market •Other Prices •Economic activity •Exogens (CF) •Labour market •Other Prices •Economic activity •Consumer prices •Forecast 2: more consistent •New data and consistency check •output gap consistency •real wages •real ER •Labour market •Economic activity •Consumer prices •Exogens (CF) •Other Prices kosticky •9 Import Prices •Small opend economy – high importance of foreign prices •DCADJ … import prices •EUR … exchange rate CZK/EUR •USD … exchange rate CZK/USD •PPIEMU … effective PPI in EU •BRENT … oil prices kosticky •10 Import Prices •All in CZK •DCADJ … import prices •EUR … exchange rate CZK/EUR •USD … exchange rate CZK/USD •PPIEMU … effective PPI in EU •BRENT … oil prices kosticky •11 Import Prices kosticky •12 Import Prices kosticky •13 Import Prices •Other prices and energy prices – impact on terms of trade kosticky •14 Producer Prices •High importance of producer prices •PPIPRO … producer prices •EUR … exchange rate CZK/EUR •USD … exchange rate CZK/USD •PPIEMU … effective PPI in EU •BRENT … oil prices kosticky •15 Producer Prices kosticky •16 Potential Output and Output Gap •Cobb-Douglas production function •HP filter •Kalman filter kosticky •17 Labour Market •Expected inflation •Labour productivity •Position of the trade unions - collective bargaining •Position of the economy in the business cycle •Financial position of companies •Development and expectations in industry and constructing kosticky •18 Adjusted Inflation •Forecast of Adjusted inflation with different models, Y-O-Y kosticky •19 Adjusted Inflation •KORXPH … adjusted inflation •CPIEMU … effective CPI in EU •EUR … exchange rate CZK/EUR •DCADJ_F … import prices •ULC … unit labour cost • Set of models and expert judgment •Model of adjusted inflation, Y-O-Y kosticky •20 Food Prices •Set of models and expert judgment •Example of NTF Food Prices Equation •FOOD_YOY_NOTXP … food prices inflation •CZV_YOY … agricultural producer prices •DCPOT_YOY … import prices of food com. kosticky •21 Food Prices •Set of models and expert judgment kosticky •22 Net inflation •Calibrated estimate of inflationary pressures •impcost = 0.9*(eur*ppiemu) + 0.1*(0.6*(usd*brent) + 0.4*(usd*gas)) •cost = 0.4*gdp_gap + 0.7*ulc(-1) + 0.3*impcost(-2)