## mpaf

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---

### Course objectives
- Two-week Model-Based Monetary Policy Analysis and Forecasting (MPAF) course aims to provide rigorous training on the use of simple Dynamic New Keynesian (DNK) models to conduct monetary analysis and forecasting, emphasizing monetary policy responses to macroeconomic imbalances and shocks.
- Upon completion, participants should be able to:
  - Customize a simple model of an economy in the region that embodies the monetary policy transmission mechanism and the shocks it may face.
  - Acquire and apply tools used in modern central banks to conduct ‘model-based’ monetary policy analysis and forecasting utilizing a hands-on software-based framework.
  - Conduct nowcasting and near-term forecasting using various estimation-based econometric techniques and expert judgment.
  - Use the model to develop consistent medium-term quarterly projections of key macro variables such as output, inflation, interest rate and the exchange rate.
  - Identify risks in the baseline forecast and develop medium-term projections for alternative scenarios, which assume that such risks materialize.
  - Start building a simple model for monetary policy analysis using own country data upon return.

### Topics (Core units)
- Core units numbered 0–12:
  - 0. Introductory Lecture and Learning Objectives
  - 1. Monetary Policy Modernization, FPAS and Course Overview
  - 2. The Core Model and Other Components of a Forecasting and Policy Analysis System (FPAS)
  - 3. Consistency of Monetary Policy Objectives and Key Macroeconomic Trends
  - 4. Introduction to a Small New Keynesian Model for Policy Analysis
  - 5. The CPI Components and their Relative Prices in the Model
  - 6. Alternative Exchange Rate Regimes and Foreign Exchange Intervention
  - 7. Estimating Long-Run Trends and Gaps
  - 8. Methods in Model Parameterization and Model Properties Assessment
  - 9. Nowcasting
  - 10. Near-Term Forecasts
  - 11. Modeling Fiscal Policy
  - 12. Baseline and Alternative Forecast Scenarios

### Topics (Auxiliary units)
- A1. Money-Based Frameworks: Money Targeting and Flexible Money Targeting

### Target audience and delivery
- Target audience: Mid- to senior-level officials involved in monetary policy decision making and staff involved in macroeconomic analysis and forecasting or operating macroeconomic models.
- First delivery of course: IMF HQ, July 11-22, 2016. All country case studies were ready by the delivery date.
- Course length: two-week program.

### Prerequisites and performance evaluation
- Prerequisites:
  - Advanced degree in economics or equivalent experience and comfort with quantitative techniques.
  - Strongly recommended to attend the Monetary Policy (MP) course and complete the online Macroeconometric Forecasting (MFx) course before applying.
  - Participants should be comfortable using quantitative software such as EViews and Matlab/Octave (specific knowledge not required).
  - Required: completion of complementary e-learning modules providing necessary technical background.
  - Highly recommended: pre-course on-line training videos on software and code supporting running the model.
- Performance evaluation:
  - Two multiple-choice tests will be given, one at the beginning and the other at the end of the course. Performance in these tests will be recorded in participants’ evaluation.

### Relation to existing course and technical assistance
- Comparison with the existing Monetary Policy Analysis course:
  - Addressed recommendations made in the Montiel’s Report.
  - Dropped certain lectures (monetary policy transmission mechanism under stress and monetary targeting analysis).
  - Streamlined repetition in lectures on estimating long-run trends and reordered lectures in coherence with Montiel’s recommended sequencing.
  - Extended core model for CPI components and relative prices and expanded discussion of exchange rate management versions.
  - Developed a new module on estimation and extended coverage to fiscal policy analysis.
  - Other extensions to the core QPM (e.g., (flexible) money targeting) may be discussed time permitting.
- Relation between MPA training and Technical Assistance (TA):
  - Training provides technical background needed to develop and/or extend small New Keynesian-type policy models for countries.
  - MCM and RES have provided technical advice on these models; coordinating training and TA via the IMF Interdepartmental ‘Coordinating Group on Monetary Policy’ is recommended to identify candidate countries seeking TA on monetary framework modernization.

### Team and review
- Team:
  - Jaromir Hurnik (leader)
  - Mikhail Pranovich
  - Adina Popescu (up to July 29, 2016)
  - Philippe Karam (leader, up to March 31, 2016)
  - Andres Gonzales Gomez (observer)
- Reviewers:
  - Internal: RES (Douglas Laxton / Ales Bulir)
  - External: Jack Selody (formerly Bank of Canada)

### Program outline — Unit summaries and instructional format
- UNIT 1: MONETARY POLICY MODERNIZATION, FPAS AND THE COURSE OVERVIEW (Outline of Lecture: 1.5 hours)
  - Topics: Principles of modern monetary policy; Policy frameworks in practice; Structure of the course.
- UNIT 2: THE CORE MODEL AND OTHER COMPONENTS OF A FORECASTING AND POLICY ANALYSIS SYSTEM (FPAS) (Outline of Lecture: 1.5 hours)
  - Topics: Role of the core component of FPAS (the core quarterly projection model); Integration of FPAS components: databases, monitoring and reporting, forecasting (short- to medium-term), communication and decision-making; FPAS as a coherent view for central banks.
  - Workshop: No workshop.
- UNIT 3: CONSISTENCY OF POLICY OBJECTIVES AND KEY MACROECONOMIC TRENDS (Outline of Lecture: 1.5 hours)
  - Topics: Convergence, relative PPP and Balassa-Samuelson effect; Empirical behavior of the exchange rate and risk-premia and implications; Uncovered interest rate parity: long-run version; Interpreting nominal trend, real trend, and relative price trends.
  - Workshop: No workshop.
- UNIT 4: INTRODUCTION TO A SMALL NEW KEYNESIAN MODEL FOR POLICY ANALYSIS (Outline of Lecture: 1.5 hours; Workshops: two workshops per 1.5 hours, 3 hours total)
  - Lecture topics: Model structure (Aggregate Demand, New Keynesian Phillips Curve, UIP, forward-looking monetary policy rule); Steady-states, trends and business cycle; Solving the model (Blanchard-Quah algorithm); Data, initial calibration and model properties.
  - Workshop topics: Understanding model code; Basic data handling; Model solution methods; Model parameterization (first-round calibration and estimation of key equations); Model properties and impulse response analysis.
  - Note: On-line training material on MATLAB/OCTAVE (IRIS) available on course Moodle site.
- UNIT 5: THE CPI COMPONENTS AND THEIR RELATIVE PRICES IN THE MODEL (Outline of Lecture: 1.5 hours)
  - Topics: Theory of inflation in New Keynesian models and role of the inflation target; Dynamics of CPI Components: core, food, and energy inflation and relative prices; Policy responses to first- and second-round effects of shocks to CPI components; Economic foundation of transitory and permanent shocks in relative prices.
- UNIT 6: ALTERNATIVE EXCHANGE RATE REGIMES AND FOREIGN EXCHANGE INTERVENTION (Outline of Lecture: 1.5 hours; Workshop: 1.5 hours)
  - Topics: Monetary policy rule under pure IT-floating regime and modifications for exchange rate management and targeting; UIP under alternative regimes; Modeling exchange rate as operational target; Modeling foreign exchange intervention as an additional instrument; Capital account openness, exchange rate regime and monetary policy autonomy, currency substitution.
- UNIT 7: ESTIMATING LONG-RUN TRENDS AND GAPS (Outline of Lecture: 1.5 hours; Workshop: 3 hours)
  - Lecture topics: Identification of trends; Univariate filters; Multivariate (Kalman) filters.
  - Workshop topics: Application of univariate (Hodrick-Prescott and Band-Pass) and multivariate (Kalman) filters; Comparison of univariate and multivariate filters; Full model filtration and fine-tuning; Second-round calibration, Kalman filtration and recursive forecasting.
- UNIT 8: METHODS IN MODEL PARAMETERIZATION AND MODEL PROPERTIES ASSESSMENT (Outline of Lecture: 1.5 hours; Workshop: 1.5 hours)
  - Topics: Calibration versus estimation (Bayesian and maximum likelihood); Model properties: model- and data-implied correlations; Recursive forecast assessment.
  - Workshop topics: Maximum likelihood and Bayesian estimation of coefficients; Assessing model plausibility via correlation structure; Assessment based on recursive multi-step ahead projection performance.
- UNITS 9 AND 10: NOWCAST AND NEAR-TERM FORECAST (Outline: two lectures per 1.5 hours, 3 hours total; Workshops: two workshops per 1.5 hours, 3 hours total)
  - Topics: Short-term analysis and nowcasting in FPAS context; State Space models; Near-term forecasting.
  - Workshop topics: Nowcasting using dynamic factor models for GDP nowcast; Near-term forecasting: narrative approach (inflation analysis) and quantitative approach (inflation determinants).
- UNIT 11: MODELING FISCAL POLICY (Outline of Lecture: 1.5 hours; Workshop(s): 1.5 hours)
  - Topics: Auxiliary satellite model to analyze fiscal impact / fiscal impulse; Introducing fiscal impulse measure in aggregate demand equation; Simulation properties of different fiscal stimulus/adjustment scenarios.
  - Workshop topics: Understanding fiscal satellite module code; Fiscal multiplier effects over the short run; Size of multiplier under different monetary policy frameworks.
- UNIT 12: MEDIUM-TERM FORECASTING: BASELINE AND COUNTERFACTUALS FOR POLICY ANALYSIS (Outline of Lecture: 1.5 hours)
  - Topics: Building baseline forecasts and macro scenarios for policy dialogue; Discussion of specific risks and contingency plans; Role of judgment; Alternative forecast scenarios and list of scenario possibilities; Scenarios and communication.

---

### UNIT 13: WORKSHOP ON POLICY ANALYSIS AND FORECASTING (Section 2)
- Workshop objectives and format:
  - Workshops (6 hours).
  - Purpose: conduct medium-term analysis based on the model’s logic concerning medium-term equilibrating forces after identifying the likely short-run scenario and key pressures in the economy.
  - Focus: structured analysis of main risks to help participants identify and communicate policy choices: what do monetary and fiscal policies need to do to accomplish stabilization and other objectives?
  - Activities:
    - Formulation of baseline and alternative scenarios and policy analysis.
    - Preparation of the final presentation.
- Participants’ presentations — country case studies:
  - Preparation for final participant presentations (9 hours).
  - Presentation guidance:
    - Focus on the main story line, using simple charts and tables to illustrate main points.
    - Reflect a coherent and systematic analysis starting from external conditions, moving to the outlook of the domestic economy, and the implications for policies.
    - Timeline structure: start with the near-term outlook, move to the medium-term outlook, conclude with a discussion of the main risks considered by the group.
  - Country case studies:
    - Six case studies currently: the Czech Republic, Ghana, Kazakhstan, Singapore, Morocco and Honduras.
    - Purpose: reflect a wide range of countries with different monetary-exchange rate regimes and different regional circumstances and policy frameworks.
    - Emphasis: distinct challenges of monetary–exchange rate policy interactions, the role of the exchange rate, the significant role for monetary aggregates under limited market-based monetary policy and severe fiscal dominance.
- Auxiliary units:
  - UNIT A1: MONEY-BASED FRAMEWORKS: MONEY TARGETING AND FLEXIBLE MONEY TARGETING
    - Outline of Lecture (1.5 hours)
      - In coordination with the Monetary Policy Course.
    - Workshop
      - In coordination with the Monetary Policy Course.

### Time allocation — Lectures, Workshops, and Other Course Components
- Topics with Lecture and Workshop hours:
  - 1. Monetary Policy Frameworks and Transmission Channels — Lecture 1.5 Workshop 0
  - 2. Introduction to a Small New Keynesian Model for Policy Analysis — Lecture 1.5 Workshop 1.5
  - 3. The CPI Components and their Relative Prices in the Model — Lecture 1.5 Workshop 1.5
  - 4. Consistency of Policy Objectives and Key Macroeconomic Trends — Lecture 1.5 Workshop 0
  - 5. Estimating Long-Run Trends and Gaps — Lecture 1.5 Workshop 1.5
  - 6. Core Model Extension: Fiscal Policy Impact Analysis, and Other Topics — Lecture 1.5 Workshop 3
  - 7. Alternative Exchange Rate Regimes and Forex Intervention — Lecture 1.5 Workshop 1.5
  - 8. Methods in Model Parameterization and Model Properties Assessment — Lecture 1.5 Workshop 1.5
  - 9. The Core Model and Other Components of a Forecasting and Policy Analysis System — Lecture 1.5 Workshop 0
  - 10. Short-Term Forecasting: Nowcast and Near-Term Forecast — Lecture 3 Workshop 3
  - 11. Medium-Term Forecasting: Baseline and Counterfactuals for Policy Analysis — Lecture 1.5 Workshop 3
  - 12. Alternative Forecast Scenarios: Risk Analysis under Uncertainty — Lecture 1.5 Workshop 3
  - Preparation for final participant presentations: Preparing a formal quarterly forecast and scenarios for policy dialogue — Lecture 0 Workshop 9
- Subtotals and totals:
  - Subtotal Lecture 19.5 Workshop 28.5
  - Other Components:
    - Admin Briefing and Welcoming Remarks 0.5
    - Introductory Lecture 1.5
    - Initial/Final Quizzes 1
    - Participant final presentations 2
    - Participant course evaluation 0.5
    - Closing remarks 0.5
  - Subtotal Other Components 4.0
  - Total Lecture 25.0 Workshop 30.5

### Course review recommendations and actions taken
- Extraneous lecture: issue 1. “Approaches to Monetary Policy Analysis” was disliked; seen as a strange lecture on using money-based monetary analysis. Rationale: significant role for monetary aggregates may be warranted in LIC/LMICs facing limited scope for market-based (interest rate) monetary policy, but the lecture did not fit the course’s core model. Action taken: lecture and associated workshop omitted.
- Extraneous lecture: issue 2. “Monetary Policy Transmission under Stress” was disliked; informative but considered more appropriate for a monetary policy course than a course on model-based policy analysis. Action taken: Lecture omitted.
- Repetitive material issue: overlap between “Nowcasts and Near-Term Forecasts” and “Models for Policy Analysis: Long -Run Trends”. Action taken: lectures retitled and refocused as “Unit 10: Short-Term Forecasting: Nowcast and Near-Term Forecast” and “Unit 5. Estimating Long-Run Trends (Univariate and Multivariate Filters): Model-Dependency” to separate techniques and model-centered forecasting applications.
- Sequencing: issue 1. “Models for Policy Analysis: Long -Run Trends” was far removed from “Introduction to New Keynesian Economics”. Action taken: “Unit 5. Estimating Long-Run Trends and Gaps” now comes immediately after “Unit 2: Introduction to a Small New Keynesian Model for Policy Analysis”.
- Sequencing: issue 2. “Monetary Policy and the Transmission Mechanism” was oddly placed before “Introduction to New Keynesian Economics”. Action taken: lecture omitted to free space for fiscal analysis; an on-line module largely covers the topic.
- Suggested “Financial Stability” topic: relegated to an auxiliary unit, time permitting.
- Recommendation for lectures’ re-ordering: Action taken: new course sequence now reflects Peter’s sequence of (re-titled) lectures: Unit 1, 2, 5, 10, 11, 12.
- Recommendation to introduce a dedicated course on using small New Keynesian policy models as an IET course: Action taken: a course on “Monetary Policy Analysis and Forecasting” is now part of the IET curriculum.
- No particular recommendations on selection of country case studies; observers noted a good balance between lectures and workshops (evenly split).

*Source: Model-Based Monetary Policy Analysis and Forecasting (MPAF) course materials, IMF Institute for Capacity Development.*

### Section 1

### mpaf - Section 1

### Course objectives
- The two-week Model-Based Monetary Policy Analysis and Forecasting (MPAF) course aims to provide rigorous training on the use of simple Dynamic New Keynesian (DNK) models to conduct monetary analysis and forecasting, emphasizing monetary policy responses to macroeconomic imbalances and shocks.  
- Upon completion, participants should be able to:
  - Customize a simple model of an economy in the region that embodies the monetary policy transmission mechanism and the shocks it may face.
  - Acquire and apply tools used in modern central banks to conduct ‘model-based’ monetary policy analysis and forecasting utilizing a hands-on software-based framework.
  - Conduct nowcasting and near-term forecasting using various estimation-based econometric techniques and expert judgment.
  - Use the model to develop consistent medium-term quarterly projections of key macro variables such as output, inflation, interest rate and the exchange rate.
  - Identify risks in the baseline forecast and develop medium-term projections for alternative scenarios, which assume that such risks materialize.
  - Start building a simple model for monetary policy analysis using own country data upon return.

### Topics (Core units)
- Core units numbered 0–12:
  - 0. Introductory Lecture and Learning Objectives
  - 1. Monetary Policy Modernization, FPAS and Course Overview
  - 2. The Core Model and Other Components of a Forecasting and Policy Analysis System (FPAS)
  - 3. Consistency of Monetary Policy Objectives and Key Macroeconomic Trends
  - 4. Introduction to a Small New Keynesian Model for Policy Analysis
  - 5. The CPI Components and their Relative Prices in the Model
  - 6. Alternative Exchange Rate Regimes and Foreign Exchange Intervention
  - 7. Estimating Long-Run Trends and Gaps
  - 8. Methods in Model Parameterization and Model Properties Assessment
  - 9. Nowcasting
  - 10. Near-Term Forecasts
  - 11. Modeling Fiscal Policy
  - 12. Baseline and Alternative Forecast Scenarios

### Topics (Auxiliary units)
- A1. Money-Based Frameworks: Money Targeting and Flexible Money Targeting

### Target audience and delivery
- Target audience: Mid- to senior-level officials involved in monetary policy decision making and staff involved in macroeconomic analysis and forecasting or operating macroeconomic models.
- First delivery of course: IMF HQ, July 11-22, 2016. All country case studies were ready by the delivery date.
- Course length: two-week program.

### Prerequisites and performance evaluation
- Prerequisites:
  - Advanced degree in economics or equivalent experience and comfort with quantitative techniques.
  - Strongly recommended to attend the Monetary Policy (MP) course and complete the online Macroeconometric Forecasting (MFx) course before applying.
  - Participants should be comfortable using quantitative software such as EViews and Matlab/Octave (specific knowledge not required).
  - Required: completion of complementary e-learning modules providing necessary technical background.
  - Highly recommended: pre-course on-line training videos on software and code supporting running the model.
- Performance evaluation:
  - Two multiple-choice tests will be given, one at the beginning and the other at the end of the course. Performance in these tests will be recorded in participants’ evaluation.

### Relation to existing course and technical assistance
- Comparison with the existing Monetary Policy Analysis course:
  - Addressed recommendations made in the Montiel’s Report.
  - Dropped certain lectures (monetary policy transmission mechanism under stress and monetary targeting analysis).
  - Streamlined repetition in lectures on estimating long-run trends and reordered lectures in coherence with Montiel’s recommended sequencing.
  - Extended core model for CPI components and relative prices and expanded discussion of exchange rate management versions.
  - Developed a new module on estimation and extended coverage to fiscal policy analysis.
  - Other extensions to the core QPM (e.g., (flexible) money targeting) may be discussed time permitting.
- Relation between MPA training and Technical Assistance (TA):
  - Training provides technical background needed to develop and/or extend small New Keynesian-type policy models for countries.
  - MCM and RES have provided technical advice on these models; coordinating training and TA via the IMF Interdepartmental ‘Coordinating Group on Monetary Policy’ is recommended to identify candidate countries seeking TA on monetary framework modernization.

### Team and review
- Team: Jaromir Hurnik (leader), Mikhail Pranovich, Adina Popescu (up to July 29, 2016), Philippe Karam (leader, up to March 31, 2016), Andres Gonzales Gomez (observer).
- Reviewers: Internal: RES (Douglas Laxton / Ales Bulir); External: Jack Selody (formerly Bank of Canada).

### Program outline — Unit summaries and instructional format
- UNIT 1: MONETARY POLICY MODERNIZATION, FPAS AND THE COURSE OVERVIEW (Outline of Lecture: 1.5 hours)
  - Topics: Principles of modern monetary policy; Policy frameworks in practice; Structure of the course.
- UNIT 2: THE CORE MODEL AND OTHER COMPONENTS OF A FORECASTING AND POLICY ANALYSIS SYSTEM (FPAS) (Outline of Lecture: 1.5 hours)
  - Topics: Role of the core component of FPAS (the core quarterly projection model); Integration of FPAS components: databases, monitoring and reporting, forecasting (short- to medium-term), communication and decision-making; FPAS as a coherent view for central banks.
  - Workshop: No workshop.
- UNIT 3: CONSISTENCY OF POLICY OBJECTIVES AND KEY MACROECONOMIC TRENDS (Outline of Lecture: 1.5 hours)
  - Topics: Convergence, relative PPP and Balassa-Samuelson effect; Empirical behavior of the exchange rate and risk-premia and implications; Uncovered interest rate parity: long-run version; Interpreting nominal trend, real trend, and relative price trends.
  - Workshop: No workshop.
- UNIT 4: INTRODUCTION TO A SMALL NEW KEYNESIAN MODEL FOR POLICY ANALYSIS (Outline of Lecture: 1.5 hours; Workshops: two workshops per 1.5 hours, 3 hours total)
  - Lecture topics: Model structure (Aggregate Demand, New Keynesian Phillips Curve, UIP, forward-looking monetary policy rule); Steady-states, trends and business cycle; Solving the model (Blanchard-Quah algorithm); Data, initial calibration and model properties.
  - Workshop topics: Understanding model code; Basic data handling; Model solution methods; Model parameterization (first-round calibration and estimation of key equations); Model properties and impulse response analysis.
  - Note: On-line training material on MATLAB/OCTAVE (IRIS) available on course Moodle site.
- UNIT 5: THE CPI COMPONENTS AND THEIR RELATIVE PRICES IN THE MODEL (Outline of Lecture: 1.5 hours)
  - Topics: Theory of inflation in New Keynesian models and role of the inflation target; Dynamics of CPI Components: core, food, and energy inflation and relative prices; Policy responses to first- and second-round effects of shocks to CPI components; Economic foundation of transitory and permanent shocks in relative prices.
- UNIT 6: ALTERNATIVE EXCHANGE RATE REGIMES AND FOREIGN EXCHANGE INTERVENTION (Outline of Lecture: 1.5 hours; Workshop: 1.5 hours)
  - Topics: Monetary policy rule under pure IT-floating regime and modifications for exchange rate management and targeting; UIP under alternative regimes; Modeling exchange rate as operational target; Modeling foreign exchange intervention as an additional instrument; Capital account openness, exchange rate regime and monetary policy autonomy, currency substitution.
- UNIT 7: ESTIMATING LONG-RUN TRENDS AND GAPS (Outline of Lecture: 1.5 hours; Workshop: 3 hours)
  - Lecture topics: Identification of trends; Univariate filters; Multivariate (Kalman) filters.
  - Workshop topics: Application of univariate (Hodrick-Prescott and Band-Pass) and multivariate (Kalman) filters; Comparison of univariate and multivariate filters; Full model filtration and fine-tuning; Second-round calibration, Kalman filtration and recursive forecasting.
- UNIT 8: METHODS IN MODEL PARAMETERIZATION AND MODEL PROPERTIES ASSESSMENT (Outline of Lecture: 1.5 hours; Workshop: 1.5 hours)
  - Topics: Calibration versus estimation (Bayesian and maximum likelihood); Model properties: model- and data-implied correlations; Recursive forecast assessment.
  - Workshop topics: Maximum likelihood and Bayesian estimation of coefficients; Assessing model plausibility via correlation structure; Assessment based on recursive multi-step ahead projection performance.
- UNITS 9 AND 10: NOWCAST AND NEAR-TERM FORECAST (Outline: two lectures per 1.5 hours, 3 hours total; Workshops: two workshops per 1.5 hours, 3 hours total)
  - Topics: Short-term analysis and nowcasting in FPAS context; State Space models; Near-term forecasting.
  - Workshop topics: Nowcasting using dynamic factor models for GDP nowcast; Near-term forecasting: narrative approach (inflation analysis) and quantitative approach (inflation determinants).
- UNIT 11: MODELING FISCAL POLICY (Outline of Lecture: 1.5 hours; Workshop(s): 1.5 hours)
  - Topics: Auxiliary satellite model to analyze fiscal impact / fiscal impulse; Introducing fiscal impulse measure in aggregate demand equation; Simulation properties of different fiscal stimulus/adjustment scenarios.
  - Workshop topics: Understanding fiscal satellite module code; Fiscal multiplier effects over the short run; Size of multiplier under different monetary policy frameworks.
- UNIT 12: MEDIUM-TERM FORECASTING: BASELINE AND COUNTERFACTUALS FOR POLICY ANALYSIS (Outline of Lecture: 1.5 hours)
  - Topics: Building baseline forecasts and macro scenarios for policy dialogue; Discussion of specific risks and contingency plans; Role of judgment; Alternative forecast scenarios and list of scenario possibilities; Scenarios and communication.

*Source: Model-Based Monetary Policy Analysis and Forecasting (MPAF) course materials, IMF Institute for Capacity Development.*

### Section 2

### UNIT 13 WORKSHOP ON POLICY ANALYSIS AND FORECASTING

### Workshop objectives and format
- Workshops (6 hours).
- Purpose: conduct medium-term analysis based on the model’s logic concerning medium-term equilibrating forces after identifying the likely short-run scenario and key pressures in the economy.
- Focus: structured analysis of main risks to help participants identify and communicate policy choices: what do monetary and fiscal policies need to do to accomplish stabilization and other objectives?
- Activities:
  - Formulation of baseline and alternative scenarios and policy analysis.
  - Preparation of the final presentation.

### Participants’ presentations — country case studies
- Preparation for final participant presentations (9 hours).
- Presentation guidance:
  - Focus on the main story line, using simple charts and tables to illustrate main points.
  - Reflect a coherent and systematic analysis starting from external conditions, moving to the outlook of the domestic economy, and the implications for policies.
  - Timeline structure: start with the near-term outlook, move to the medium-term outlook, conclude with a discussion of the main risks considered by the group.
- Country case studies:
  - Six case studies currently: the Czech Republic, Ghana, Kazakhstan, Singapore, Morocco and Honduras.
  - Purpose: reflect a wide range of countries with different monetary-exchange rate regimes and different regional circumstances and policy frameworks.
  - Emphasis: distinct challenges of monetary–exchange rate policy interactions, the role of the exchange rate, the significant role for monetary aggregates under limited market-based monetary policy and severe fiscal dominance.

### Auxiliary units
- UNIT A1: MONEY-BASED FRAMEWORKS: MONEY TARGETING AND FLEXIBLE MONEY TARGETING
  - Outline of Lecture (1.5 hours)
    - In coordination with the Monetary Policy Course.
  - Workshop
    - In coordination with the Monetary Policy Course.

### Time allocation — Lectures, Workshops, and Other Course Components
- Topics with Lecture and Workshop hours:
  - 1. Monetary Policy Frameworks and Transmission Channels — Lecture 1.5 Workshop 0
  - 2. Introduction to a Small New Keynesian Model for Policy Analysis — Lecture 1.5 Workshop 1.5
  - 3. The CPI Components and their Relative Prices in the Model — Lecture 1.5 Workshop 1.5
  - 4. Consistency of Policy Objectives and Key Macroeconomic Trends — Lecture 1.5 Workshop 0
  - 5. Estimating Long-Run Trends and Gaps — Lecture 1.5 Workshop 1.5
  - 6. Core Model Extension: Fiscal Policy Impact Analysis, and Other Topics — Lecture 1.5 Workshop 3
  - 7. Alternative Exchange Rate Regimes and Forex Intervention — Lecture 1.5 Workshop 1.5
  - 8. Methods in Model Parameterization and Model Properties Assessment — Lecture 1.5 Workshop 1.5
  - 9. The Core Model and Other Components of a Forecasting and Policy Analysis System — Lecture 1.5 Workshop 0
  - 10. Short-Term Forecasting: Nowcast and Near-Term Forecast — Lecture 3 Workshop 3
  - 11. Medium-Term Forecasting: Baseline and Counterfactuals for Policy Analysis — Lecture 1.5 Workshop 3
  - 12. Alternative Forecast Scenarios: Risk Analysis under Uncertainty — Lecture 1.5 Workshop 3
  - Preparation for final participant presentations: Preparing a formal quarterly forecast and scenarios for policy dialogue — Lecture 0 Workshop 9
- Subtotals and totals:
  - Subtotal Lecture 19.5 Workshop 28.5
  - Other Components:
    - Admin Briefing and Welcoming Remarks 0.5
    - Introductory Lecture 1.5
    - Initial/Final Quizzes 1
    - Participant final presentations 2
    - Participant course evaluation 0.5
    - Closing remarks 0.5
  - Subtotal Other Components 4.0
  - Total Lecture 25.0 Workshop 30.5

### Course review recommendations and actions taken (Table 1)
- Extraneous lecture: issue 1. “Approaches to Monetary Policy Analysis” was disliked; seen as a strange lecture on using money-based monetary analysis. Rationale: significant role for monetary aggregates may be warranted in LIC/LMICs facing limited scope for market-based (interest rate) monetary policy, but the lecture did not fit the course’s core model. Action taken: lecture and associated workshop omitted.
- Extraneous lecture: issue 2. “Monetary Policy Transmission under Stress” was disliked; informative but considered more appropriate for a monetary policy course than a course on model-based policy analysis. Action taken: Lecture omitted.
- Repetitive material issue: overlap between “Nowcasts and Near-Term Forecasts” and “Models for Policy Analysis: Long -Run Trends”. Action taken: lectures retitled and refocused as “Unit 10: Short-Term Forecasting: Nowcast and Near-Term Forecast” and “Unit 5. Estimating Long-Run Trends (Univariate and Multivariate Filters): Model-Dependency” to separate techniques and model-centered forecasting applications.
- Sequencing: issue 1. “Models for Policy Analysis: Long -Run Trends” was far removed from “Introduction to New Keynesian Economics”. Action taken: “Unit 5. Estimating Long-Run Trends and Gaps” now comes immediately after “Unit 2: Introduction to a Small New Keynesian Model for Policy Analysis”.
- Sequencing: issue 2. “Monetary Policy and the Transmission Mechanism” was oddly placed before “Introduction to New Keynesian Economics”. Action taken: lecture omitted to free space for fiscal analysis; an on-line module largely covers the topic.
- Suggested “Financial Stability” topic: relegated to an auxiliary unit, time permitting.
- Recommendation for lectures’ re-ordering: Action taken: new course sequence now reflects Peter’s sequence of (re-titled) lectures: Unit 1, 2, 5, 10, 11, 12.
- Recommendation to introduce a dedicated course on using small New Keynesian policy models as an IET course: Action taken: a course on “Monetary Policy Analysis and Forecasting” is now part of the IET curriculum.
- No particular recommendations on selection of country case studies; observers noted a good balance between lectures and workshops (evenly split).

---


_Source: https://www.imf.org/-/media/files/icd/mpaf.pdf_