A Quarterly Projection Model for Tonga

IMF Working Papers, June 20, 2025

Source details

Customizes to the Tongan economy a macroeconomic model for medium-term quarterly projections of key macro variables (QPM): output, inflation, interest rate, and exchange rate.
Designed to produce quarterly projections and scenario analysis for Tonga.

Calibrated to embody the specific attributes of the Tongan economy such as:
- the persistence of domestic output,
- core inflation and interest rates,
- Tonga’s monetary policy transmission.

The model is used to study three scenarios and assess their impact on the baseline:
- Scenario 1: shocks proxying for a bank failure.
- Scenario 2: shocks that simulate the consequences of a natural disaster.
- Scenario 3: shocks that represent a significant negative external shock on Tonga.
Rationale for scenario selection:
- Reflect the sensitivity of Tonga to adverse financial shocks,
- Reflect sensitivity to their trading partners’ macroeconomic policies,
- Reflect sensitivity to extreme weather events.

Subject: Distressed institutions, Environment, Exchange rates, Financial institutions, Foreign exchange, Inflation, Natural disasters, Output gap, Prices, Production
Keywords: Distressed institutions, Exchange rates, Forecasting and Policy Analysis, Global, Inflation, Monetary Policy, monetary policy transmission, Natural disasters, negative external shock, Output gap, policy analysis, Quarterly Projection Model, scenario analysis, sensitivity of Tonga, Transmission Mechanism