The Unassuming Economist

From a paper by Pedro M. Esperança, and Paulo Júlio:

“The literature has focused primarily on the quality of forecasts for real Gross Domestic Product (GDP) and for other macroeconomic variables (e.g. inflation or unemployment), but has not satisfactorily addressed the forecast accuracy of the major expenditure components of GDP – private consumption (C), government consumption (G), investment (I), exports (X) and imports (M)4. In a recent article, Júlio et al. (2011) have analyzed, for the first time, the quality of forecasts for GDP expenditure components. The authors showed that overpredictions in investment and exports explain most of Portuguese GDP overpredictions at 1-year horizons. GDP forecast bias diminishes significantly for same-year predictions, a fact that is mostly explained by canceling out effects in component prediction errors rather than by accurate component predictions. The authors have also proposed two new statistics – Mean of Total Weighted Absolute Error (MTWAE) and Mean of Total Weighted Squared Error (MTWSE) – to objectively evaluate the overall accuracy of component predictions.

This article uses similar techniques to analyze the forecast quality of GDP expenditure components for G7 countries. Three dimensions of forecast quality are addressed here: bias, accuracy, and efficiency. We use forecast data issued by the Organization for Economic Cooperation and Development (OECD) and by the International Monetary Fund (IMF) for the 1993-2010 period, and evaluate both 1-year ahead and same-year predictions. Our focus lies on the overall quality of institutions’ forecasts, and thus we pool evaluation statistics across countries in order to obtain an aggregate overview of the main features driving these forecasts. In addition, we propose panel versions of two types of efficiency tests presented in the literature, and analyze the effects of the 2008 crisis on the quality of forecasts.”

From a paper by Surjit Bhalla, Karan Bhasin, and Prakash Loungani:

“The trend inflation levels in India and other emerging market economies suggest a downward trajectory regardless of the adoption of inflation targeting. Therefore, it is difficult to conclusively establish that the adoption of inflation targeting in India led to a moderation in inflation or anchoring of inflation expectations. There is also some evidence that the anchoring of household expectations predates the formal adoption of inflation targeting. Similarly, long-term expectations in India have remained firmly anchored since the early 2000s. In terms of growth, the high real interest rates policy followed during the initial years of inflation targeting has adversely affected India’s growth dynamics.”

From a paper by Yurii Sholomytskyi:

“This paper examines the statistical properties of the IMF’s World Economic Outlook (WEO) projections over 1999–2023 for 29 economies. The optimism of WEO growth forecasts is well established; we confirm it and look behind it at two features of how the forecasts are built. First, the growth of the systemic economies (the United States and China) appears to be underutilized in the projections: forecasts embed less of the cross-country growth comovement present in the data, a gap we term forecast fragmentation that did not narrow over the sample. Second, the conditional growth–inflation link present in the historical data is weakly represented in the projections. These patterns suggest that structural models, in which such cross-country and real–nominal linkages can be verified through estimation, could be a useful complement to expert judgment, serving as a baseline check for medium-term anchors.”

From a paper by M. Krishna Naidu, and Dasari Rajesh Babu:

“India’s monetary buildup and structure changed substantially with the official adoption of Flexible Inflation Targeting in 2016, formalised through amendments to the Reserve Bank of India Act and operationalised by a statutory six-member Monetary Policy Committee. In this paper, we conduct a systematic conceptual analysis of the multifaceted impact of FIT on macroeconomic consistency in India, including price stability, output dynamics, exchange rate behaviour, monetary transmission efficacy, fiscal-monetary coordination, and the formation of inflation expectations. The study uses longitudinal data of macroeconomic parameters over 12 years (2012-2024). The methodology is a mixed-methods conceptual framework that includes descriptive statistical analysis, regime-phase comparisons, six-channel transmission mapping, and international bench marking with 7 inflation-targeting economies. The analysis shows a large fall in headline Consumer Price Index (CPI) Inflation from an average of 9.85% (2012-2016) before the IT. The paper’s conceptual contribution is the development of a cohesive analytical framework that concurrently assesses aims, scope, limitations, transmission channels, and cross-national insights. The findings affirm that India’s FIT is a conditionally effective regime—effective in managing expectations and reducing Inflation, but requiring institutional complementary to achieve the full macroeconomic stability benefit.”

From a paper by Chandan Sethi, and Bibhuti Ranjan Mishra:

“This paper examines whether inflation targeting (IT) policies improve the macroeconomic performance of 28 Asian economies from 1998 to 2023. Specifically, it assesses the impact of IT on inflation, GDP growth, exchange rates and unemployment. The study employs two econometric methods: propensity score matching (PSM) and panel-corrected standard errors (PCSE). The findings suggest that adopting an IT regime can significantly reduce inflation and exchange rate volatility. However, IT has no significant effect on GDP growth. In contrast, results reveal a positive, statistically significant impact on unemployment, suggesting potential short-run labour-market trade-offs associated with disinflationary policies. These findings contribute to the ongoing debate on the effectiveness of IT by highlighting that its impact on real economic variables may vary across estimation approaches and underlying assumptions.”