The Department of Finance (DOF) and the International Monetary Fund (IMF) are integrating a new forecasting model into the former’s Forecast and Policy Analysis System to improve its analytical and macroeconomic forecasting capabilities.
“The primary goal of this technical assistance project is to further enhance the DOF’s capabilities by developing and institutionalizing a macroeconomic forecasting tool tailored to the Philippines’ economic and policy context to complement other existing policy analysis tools at the DOF,” the IMF said in a report released Wednesday.
The Climate-Adjusted Economy Model (CAEM), developed by the Institute for Capacity Development (ICD) of the IMF, is a macroeconomic projection tool which integrates data management, model assumptions, sectoral projections and reporting features to provide a comprehensive framework and tool for macroeconomic forecasting.
The tool can perform two key objectives of forecasting: first, to build a baseline forecast of key macroeconomic variables, and second, to assess the effects of various economic or policy shocks through alternative scenarios.
In 2022, the DOF requested ICD’s technical assistance to enhance its macroeconomic analytical and forecasting capacity.
A scoping mission focused on the macro-analytical and forecasting needs of the DOF was conducted in 2023. It recommended DOF to implement the CAEM to complement its existing analytical toolkit and DOF staff to participate in customized training in macroeconomic forecasting.
These would further enhance the DOF’s capacity for macroeconomic forecasting and policy analysis.
In adopting the CAEM, the IMF said the DOF may consider dedicating additional resources for performing analytical tasks, conducting in-depth literature reviews and independent quantitative exercises to calibrate the model and developing a detailed user manual to preserve and disseminate knowledge among DOF staff.
IMF said the manual should contain detailed instructions on the operation of the tool, including data collection, model solving, output production, and version control protocols to track model evolutions and assumptions over time.
The manual could also outline a governance framework, with defined responsibilities and identified units per module for delineation of roles and accountability to allow management of DOF to allocate and reallocate tasks and responsibilities easily in the future.
“These recommendations aim to ensure the DOF staff can operate, maintain and update the CAEM in a continuous manner, sustaining the enhanced analytical capacity developed through this project, and addressing future analytical needs of the DOF,” the IMF said. (PNA)
