How External Factors Affect Domestic Economy: Nowcasting an Emerging Market
IMF Working Papers, December 23, 2015
Source details
- Canonical URL
- How External Factors Affect Domestic Economy: Nowcasting an Emerging Market
Other formats
Bibliographic details
- Authors: Serhat Solmaz, Marzie Taheri Sanjani
- Published: December 23, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513598987.001
Authors and Publication
- By Serhat Solmaz, Marzie Taheri Sanjani
- December 23, 2015
- IMF Working Papers, Working Paper No. 2015/269
- Issue: 269
- Volume: 2015
- Pages: 23
- DOI: https://doi.org/10.5089/9781513598987.001
- Stock No: WPIEA2015269
- ISBN: 9781513598987
- ISSN: 1018-5941
Research Objective and Context
- External headwinds, together with domestic vulnerabilities, have loomed over the prospects of emerging markets in recent years.
- Objective: Propose an empirical toolbox to quantify the impact of external macro-financial shocks on domestic economies in a parsimonious way.
Methodology
- Model: Bayesian VAR consisting of two blocks representing home and foreign factors, designed to be particularly useful for small open economies.
- Approach: Exploit the mixed-frequency nature of the model to enable “nowcasting” of output growth.
- Key technical elements preserved in the source: aggregated external shocks, Bayesian estimation, VAR, economy block, home economy, open economy, simulated economy.
Nowcasting Application
- The mixed-frequency Bayesian VAR toolbox is used to produce conditional forecasts of output growth.
- Emphasis on regular updates: the conditional forecast results illustrate that regular updates of external information, as well as domestic leading indicators, would significantly enhance the accuracy of forecasts.
Key Findings and Results
- External shocks are important drivers of the domestic business cycle, as shown by analysis of variance decompositions.
- Regular updating of:
- external information, and
- domestic leading indicators
significantly enhances forecast accuracy for output growth.
Subjects and Keywords (as provided)
- Subjects: Business cycles, Cyclical indicators, Economic forecasting, Economic growth, Industrial production, Oil prices, Production, Production growth
- Keywords: aggregated external shocks, Bayesian estimation, Business cycles, counterfactual economy, Cyclical indicators, economy block, economy interest rates, Emerging Market, GDP dynamic, Global, home economy, Industrial production, Nowcasting, open economy, Production growth, simulated economy, VAR, WP
Source: IMF Working Paper "How External Factors Affect Domestic Economy: Nowcasting an Emerging Market" by Serhat Solmaz and Marzie Taheri Sanjani (December 23, 2015).