FINEX - A New Workhorse Model for Macroeconomic Forecasting and Policy Analysis

Andrew Berg, Yaroslav Hul, Philippe Karam, Adam Remo and Diego Rodriguez Guzman ()

No 2023/235, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a semi-structural macroeconomic model aimed at facilitating policy analysis and forecasting, primarily in countries with imperfect capital mobility and hybrid monetary policy regimes. Compared to earlier gap-trend projection models, the Forecasting Model of Internal and External Balance (FINEX) contains three main innovations: it accentuates external and internal balances; explicitly incorporates fiscal policy; and partly endogenizes the main trends. FINEX thus covers a broad set of policy instruments, including foreign exchange interventions (FXI), capital flow management measures (CFM), as well as common fiscal policy instruments. The model incorporates insights from the recent DSGE literature, while maintaining a more accessible gap-trend structure that lends itself to practical policy applications. While the paper refrains from drawing broad policy lessons, it emphasizes the model's ability to interpret recent data in terms of structural shocks and policy responses, thereby aiding policymakers in constructing coherent economic narratives and considering alternative scenarios.

Keywords: Semi-Structural Modeling; Monetary Policy; Fiscal Policy; Foreign Exchange Intervention; Forecasting; Imperfect Capital Mobility; policy analysis; fiscal policy instrument; gap-trend projection model; IMF working papers; foreign currency; policy lesson; Interest rate parity; Exchange rates; Capital account; Global (search for similar items in EconPapers)
Pages: 123
Date: 2023-11-10
New Economics Papers: this item is included in nep-cba and nep-dge
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