How do international institutions predict global and national economies ?

How do international institutions predict global and national economies ?

Several international institutions including the IMF (International Monetary Fund) and the ECB (European Central Bank) regularly publish global or regional, sectoral or macroeconomic forecasts. These forecasts are expected and used by governments and businesses around the world. Twice a year, the IMF publishes its World Economic Outlook which analyzes economic developments at the global level, by major groups of countries (classified by geographic region, by stage of development, etc.) as well as in several individual countries.

If we take the example of the IMF, it uses several types of models, most of which are macro-econometric in nature. It mainly uses DSGE models, or Dynamic Stochastic General Equilibrium models. These latter are now the dominant macro-economic modeling within central banks and international institutions. A more detailed description in J. Fernández-Villaverde, F. Schorfheide, in Handbook of Macroeconomics, 2016 provides a fairly complete description of this type of models.

To be very succinct, and according to Wikipedia « Dynamic stochastic general equilibrium modeling (abbreviated as DSGE, or DGE, or sometimes SDGE) is a macroeconomic method which is often employed by monetary and fiscal authorities for policy analysis, explaining historical time-series date, as well as future forecasting purposes. DSGE econometric modeling applies general equilibrium theory and microeconomic principles in a tractable manner to postulate economic phenomena, such as economic growth and business cycles, as well as policy effects and market shocks ».

The IMF uses several resources for its modeling and forecasting work including Stata, EViews and R-Studio.