- Political stability
- Fiscal affairs
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- Macroeconomic developments
Is it difficult to make definite forecasts?
submited on 19.10.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 19.10.2007 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
Is it really that hard for economists to provide clear and definite estimates and forecasts for the economic situation? Actually not. We state that despite worries and warnings of many analysts, the following things will not happen in Bulgaria:
1/ the BGN/EUR exchange rate will not change until the introduction of the euro as the main currency,
2/ the exchange rate will not threaten “Bulgarian competitiveness”, neither will it be a reason to a larger current account deficit,
3/ the current account deficit will not cause a macroeconomic crisis, expressed in investment outflow (or other events, united by some analysts under the term “economy overheating”).
Theoretically speaking the uncertain future does not mean that macroeconomists have to be uncertain. This as any speculation on future events is based on probability distribution.
Part of the increasing uncertainty with people, who live and do business in Bulgaria comes namely from some publicly announced worries of forthcoming macroeconomic crisis. Nobody of the supporters of this thesis was not definite enough to say something like “to 2010 Bulgaria will give up on the fixed exchange rate”. But many imply that there is certain pressure on the currency board, which according to explanations is macroeconomic, and not purely political (i.e. it is not related to electing a party, which through its majority in the parliament will change the BNB law and will disable the currency board mechanism).
Industry Watch position has been more clearly expressed than any other macro analysis, as it definitely denies the possibility of macroeconomic crisis as a result of the fixed exchange rate or the current account deficit (under the current fiscal conditions).
Part of the macroeconomist’s business is forecasting. This requires their forecasts to be maximum certain, in order to serve as a foundation for investment and fiscal decisions. It is good to be aware of the difference in forecasting political decisions and macroeconomic indicators. Thus for example – the forecast of the currency board future is a political forecast, i.e. whether there will be such politicians, who will (attempt to) abolish it via a change in the law. The forecasts of the current account have nothing to do with it (correspondingly nothing in common with the forecast of the EUR/BGN exchange rate).
To the whole picture of the forecasts we have to add also the incompleteness and probably inaccurateness of much of the official sources’ data (namely which we are attempting to forecast). However, the forecast of what the official statistics would say is a useful exercise. It is a starting point toward making important decisions, including tax policy formation.
In the explanation of the macro indicators the analysts should aim at simplifying their lingo for the common public. Furthermore, the political decisions, including about the exchange rate, the size of taxes and wages in the budget sectors, affect every citizen.
1/ the BGN/EUR exchange rate will not change until the introduction of the euro as the main currency,
2/ the exchange rate will not threaten “Bulgarian competitiveness”, neither will it be a reason to a larger current account deficit,
3/ the current account deficit will not cause a macroeconomic crisis, expressed in investment outflow (or other events, united by some analysts under the term “economy overheating”).
Theoretically speaking the uncertain future does not mean that macroeconomists have to be uncertain. This as any speculation on future events is based on probability distribution.
Part of the increasing uncertainty with people, who live and do business in Bulgaria comes namely from some publicly announced worries of forthcoming macroeconomic crisis. Nobody of the supporters of this thesis was not definite enough to say something like “to 2010 Bulgaria will give up on the fixed exchange rate”. But many imply that there is certain pressure on the currency board, which according to explanations is macroeconomic, and not purely political (i.e. it is not related to electing a party, which through its majority in the parliament will change the BNB law and will disable the currency board mechanism).
Industry Watch position has been more clearly expressed than any other macro analysis, as it definitely denies the possibility of macroeconomic crisis as a result of the fixed exchange rate or the current account deficit (under the current fiscal conditions).
Part of the macroeconomist’s business is forecasting. This requires their forecasts to be maximum certain, in order to serve as a foundation for investment and fiscal decisions. It is good to be aware of the difference in forecasting political decisions and macroeconomic indicators. Thus for example – the forecast of the currency board future is a political forecast, i.e. whether there will be such politicians, who will (attempt to) abolish it via a change in the law. The forecasts of the current account have nothing to do with it (correspondingly nothing in common with the forecast of the EUR/BGN exchange rate).
To the whole picture of the forecasts we have to add also the incompleteness and probably inaccurateness of much of the official sources’ data (namely which we are attempting to forecast). However, the forecast of what the official statistics would say is a useful exercise. It is a starting point toward making important decisions, including tax policy formation.
In the explanation of the macro indicators the analysts should aim at simplifying their lingo for the common public. Furthermore, the political decisions, including about the exchange rate, the size of taxes and wages in the budget sectors, affect every citizen.
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