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Can the IMF's Medium-Term Growth Projections Be Improved?

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Author Info

  • Juan Zalduendo
  • Catia Batista

Abstract

Numerous reports have noted that the IMF''s medium-term growth projections are overly optimistic, raising questions as to how these can be improved. To this end, we estimate a growth model and examine its out-of-sample forecasting properties relative to those of IMF projections. The model''s projections outperform those of the IMF in all regions and among most income groups-projections are less biased (one-quarter of the IMF bias) and have smaller standard errors (20 percent lower root mean squared errors) even after controlling for the IMF''s macroeconomic assumptions. The paper does not attempt to address the criticisms that have been leveled against the empirical growth literature, but the results suggest that benefits can be derived from bringing systematic analysis to bear on cross-country information.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/203.

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Length: 31
Date of creation: 01 Oct 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/203

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Related research

Keywords: Economic growth; Forecasting models; inflation; statistic; forecasting; terms of trade; inflation rates; standard errors; black market; equations; standard deviation; equation; correlation; inflation rate; statistics; heteroscedasticity; estimation method; prediction; standard error; descriptive statistics; time series; empirical framework; annual inflation; empirical model; monetary economics; logarithmic function; low inflation; instrumental variables; statistical significance; increase in inflation; logarithm; estimation period; horizontal axis; dummy variable; samples; predictability; rate of inflation; high inflation; projection period; price inflation; real exchange rates; terms of trade shocks; stata; autocorrelation; foreign exchange; simultaneous equation; measurement errors; sensitivity analysis; empirical validity; mean square; missing data; extrapolations;

This paper has been announced in the following NEP Reports:

References

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  1. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  2. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  3. Dan Ben-David & David H. Papell, 1998. "Slowdowns And Meltdowns: Postwar Growth Evidence From 74 Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 561-571, November.
  4. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  5. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  6. Xavier X. Sala-i-Martin, 1997. "I Just Ran Four Million Regressions," NBER Working Papers 6252, National Bureau of Economic Research, Inc.
  7. William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers 4474, National Bureau of Economic Research, Inc.
  8. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  9. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  10. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  11. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  12. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  13. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
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Citations

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Cited by:
  1. Juan Zalduendo, 2005. "Pace and Sequencing of Economic Policies," IMF Working Papers 05/118, International Monetary Fund.
  2. Judith Gold & Ruben Atoyan & Cornelia Staritz, 2007. "Guyana," IMF Working Papers 07/86, International Monetary Fund.
  3. Helmut Hofer & Torsten Schmidt & Klaus Weyerstrass, 2011. "Practice and Prospects of Medium-term Economic Forecasting," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(1), pages 153-171, February.
  4. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2012. "Using capabilities to project growth, 2010–2030," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 153-166.
  5. Biljana Petkovska, 2008. "Estimation of the investment function for the Republic of Macedonia," Working Papers 2008-04, National Bank of the Republic of Macedonia.
  6. Tobias Kitlinski & Torsten Schmidt, 2011. "The Forecasting Performance of an Estimated Medium Run Model," Ruhr Economic Papers 0301, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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