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

By Andrew Berg, Yaroslav Hul, Philippe D Karam, Adam Remo, Diego Rodriguez Guzman

November 10, 2023

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Andrew Berg, Yaroslav Hul, Philippe D Karam, Adam Remo, and Diego Rodriguez Guzman. FINEX - A New Workhorse Model for Macroeconomic Forecasting and Policy Analysis, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Balance of payments, Capital account, Exchange rates, Financial services, Fiscal policy, Foreign exchange, Interest rate parity, Public debt

Keywords: Capital account, Exchange rates, Fiscal Policy, Fiscal policy instrument, Forecasting, Foreign currency, Foreign Exchange Intervention, Gap-trend projection model, Global, IMF working papers, Imperfect Capital Mobility, Interest rate parity, Monetary Policy, Policy analysis, Policy lesson, Semi-Structural Modeling

Publication Details

Pages:

123
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/235
Stock No:

WPIEA2023235
ISBN:

9798400259395
ISSN:

1018-5941

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