Current trends in macroeconomic modelling in central banks in light of the turbulent nature of recent events

Jaromir Tonner

A chapter in CNB Global Economic Outlook - July 2022, 2022, pp 14-20 from Czech National Bank, Research and Statistics Department

Abstract: Forecasters worldwide are often criticised for failing to forecast certain events. They also face criticism that their forecasts do not materialise. It is human nature to perceive negative events much more strongly than positive ones. To put this into context: we only notice peace when there is a war; we perceive health only after we become ill; we are quick to forget our successes, while analysing and dwelling on our failures. In this way, the human brain tries to learn from negative events to avoid them in the future, or at least to be prepared for them. This also applies to the way in which we perceive the nonfulfilment of forecasts, be it weather forecasts or economic forecasts. The diversity of the real world also brings with it events which are unpredictable in nature and scope, and it is not possible for us to fully prepare for their effects in advance. All we can do is adapt to them gradually. In forecasting language, the level of "off-the mark" forecasts we are all very much observing, is on the rise. On the other hand, there are certain economic principles we can rely on. For instance, if the labour market is overheated, we can expect its impacts on the economy to last for some time. In this article, we will show the areas and contexts in which the current development of macroeconomic models - whose purpose it is to capture events for which there are strong economic regularities - is taking place. We will also show that central banks have the tools to deal with unpredictable events. However, some degree of inaccuracy is unavoidable, and this must be reduced with each subsequent forecast, as incoming data about the event becomes available.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cnb.cz/export/sites/cnb/en/monetary-po ... 2/gev_2022_07_en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cnb:ocpubc:geo2022/7

Access Statistics for this chapter

More chapters in Occasional Publications - Chapters in Edited Volumes from Czech National Bank, Research and Statistics Department Contact information at EDIRC.
Bibliographic data for series maintained by Tomas Karhanek ().