Author Topic: Simple is the key  (Read 916 times)

STONE

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Simple is the key
« on: April 12, 2010, 17:46:40 GMT »
Macro-fiscal analysis made simple is a good title.  The key to good macro-fiscal analysis is to make it simple.  This is something the IMF has perfected - the Financial programming model based on Polak's 1950s (?) work developed a bit by others is a delight in simplicity.

It's just a way of getting consistency across the four macro accounts and that, as a wise teacher once said, is the basis of all macro models - be they time series macro-econometric models or CGE models.  They are simple but building them and maintaing them is hard routine work and is only really successful if it is done as a collaborative effort between Ministry of Finance, Planning Office, Central Bank and the statistics office on a regular basis. 

A colleague in the former Warwick Development Institute attached to the University of Warwick once put a huge amount of work into developing this approach - essentially a real workshop approach to be done on a quarterly basis. I believe he had the right approach for small staff (N.B. not low capacity) governments - I know he hasn't given up as he tried it again recently in Albania so I'll see if I can get him to contribute to this. 

Of course there's a caveat to my praise of the IMF - they tend to do it on their own when in country - always in a hurry I guess.  It's a pity that they don't do more to "institutionalise" what they do as they put enormous efforts into funding FP courses and training: they just don't make the link - outside their mandate perhaps.
« Last Edit: April 13, 2010, 08:10:11 GMT by Napodano »

Napodano

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Re: Simple is the key
« Reply #1 on: April 13, 2010, 02:20:35 GMT »
Any recommended readings or web links on this topic?

Kit Nicholson

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Re: Simple is the key
« Reply #2 on: April 13, 2010, 09:20:22 GMT »
What Simon says is true - given the elegance and logical simplicity of the macro-consistency framework, it should be more widely used and more accessible. There is a good deal of unecessary mystery around the preparation of the IMF Article IV tables.

Having run several training courses on such frameworks and seen the lights go on as the accounts fit together, I find it extraordinary that no simple general guide has been produced (to my knowledge). I know Alan (Roe) was working on a textbook that might cover some of this area. Of course, the devil is in the detail and, once the basic framework is in place it raises all sorts of questions. But a large part of it's purpose is to raise those questions and to throw light on which of the questions need most attention.

A good starting point is just to take the National Accounts, Balance of Payments, Government Accounts and Monetary Accounts and stick them all on one spreadsheet, with a few pricing indicators at the top (exchange rates, inflation ...) and then try to ensure that there is consistency in the items that feature in two or more accounts (ie trade balance in NA and BoP, indirect taxes in NA and GA, official foreign grants/loans in BoP and GA, public borrowing in GA and MA ...). That leads on to some questions about the residual items that balance the different accounts, which are usually the items for which data is weakest. When starting work in a new country, I often download the latest accounts from the Article IV consultation papers on the IMF web (there is some knatty (?) copy pasting that you can do from pdf fto xls files) and get these into a common spreadsheet. That usually reveals the big data issues and allows you to focus on improving the data.

Once that is up and running, the framework is a powerful instrument for exploring future projections.

petagny

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Re: Simple is the key
« Reply #3 on: April 13, 2010, 17:35:50 GMT »
William Easterley's paper, 'A Consistency Framework for Macroeconomic Analysis', is helpful.

It should be downloadable here:

http://ideas.repec.org/p/wbk/wbrwps/234.html

petagny

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Re: Simple is the key
« Reply #4 on: April 14, 2010, 10:38:58 GMT »
Here's Martin Wolf in today's FT looking at future paths for the UK economy using some of the basic relationships of a macroeconomic consistency framework:

http://www.ft.com/cms/s/0/1bf3ffb0-472c-11df-b253-00144feab49a,s01=1.html

It could be a good training exercise to get participants to read, explain and discuss this kind of article (Martin Wolf is a good source in my opinion).

Kit Nicholson

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Re: Simple is the key
« Reply #5 on: April 15, 2010, 10:39:07 GMT »
The FT article is good and shows that this sort of macroconsistency framework is particularly useful when dealing with large shocks and countries with structural imbalance. It's not so useful in dealing with marginally changing economies, if there are any of those left, these days.

Kit Nicholson

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Re: Simple is the key
« Reply #6 on: April 21, 2010, 08:51:31 GMT »
In case it's useful to anyone, I am attaching a presentation that John Short and I used to initiate a macroframeworkshop in Albania. If anyone is interested in the spreadsheet with the structured exercises, I can provide this. The framework structure is fairly common to all countries, but the data and issues are, of course, very country specific.

petagny

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Re: Simple is the key
« Reply #7 on: April 21, 2010, 17:22:43 GMT »
Slide 15 is powerful.

This is a message I tried to get across in Vietnam: the link between investment and growth is not straightforward. Fortunately Vietnam has been growing rather faster than Zambia, but I suspect that the ICOR may not have been a particularly good tool for predicting growth - there are more deepseated structural changes underway that are altering the efficiency with which capital and labour are being used.

I would be very interested in the spreadsheet and exercises.
« Last Edit: April 21, 2010, 17:46:24 GMT by Napodano »

harnett

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Re: Simple is the key
« Reply #8 on: April 27, 2010, 17:29:43 GMT »
Thanks a lot for this presentation.  Just wondering where the informal economy assumptions/scenarios fit into this model, especially in a transitional economy such as Albania

John Short

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Re: Simple is the key
« Reply #9 on: April 27, 2010, 17:57:45 GMT »
In the construct of the GDP - there is an estimate for the non monetised component of GDP.  The model shows what the impact of a shift from non monetised to monetised has on tax to GDP ratio as economic activity become more formal (monetised) as farmers and the like buy (more) fags, booze and other taxed items. 
« Last Edit: April 27, 2010, 18:22:20 GMT by John Short »

 

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