Economic Forecasting for Large Russian Cities

The Budget Code of the Russian Federation requires that local self-governments prepare their budgets for the next year taking into account the likely economic situation in that year. To date these governments have had little guidance to use in preparing their budgets. This paper reports the results of initial steps to develop a procedure for forecasting key economic parameters at the local level. “Local level” is defined as cities that are capitals of Subjects of the Federation (similar to U.S. states); generally these are cities of over 100,000 population. Econometric models are reported for employment, manufacturing production, retail sales, average wage rates, volume of newly constructed housing, and fixed capital formation. The choice of estimation procedures was significantly constrained by data availability. The current document is an interim report, prepared after the basic econometric work has been completed but before the model is tested in actual forecasting. The paper consists of six further sections. The first lists the economic variables to be projected. The second describes the economic logic underlying the models specified for each variable. The third section then outlines the econometric strategy. This is followed in the fourth section with an overview of the data employed in the estimates. The fifth section presents the final models. The paper closes with a short discussion of the plans for future work in this direction. In the next phase of the work the forecasting qualities of these models will be evaluated.