Econometric Macro-Model Building in the Irish Context. Quarterly Economic Commentary Special Article, June 1970

Building an econometric macro-mociel of any country involves a major commitment of resources--research and clerical manpower, and computer time. This is so because, if it is to. be useful, the model must reflect as accurately · as possible, and in some detail, the complex interaction of forces that generate the time path of the national economy. This can only be done-if it can be done at all-by a close union of detailed, expert opinion on the structure of each sector of the economy and ingenious, tedious experimentation in the econometric field A model of the national economy. is more than a collection of sector by sector studies because great care must be taken t<f specify the interaction of the sectors, but the link between the macro-model builders and the economists who have specialised in various facets of the economy (such as consumptionsavings behaviour, price formation etc.) must be · very close. Since it may not be unreasonable to spend over a year producing a worthwhile study of one aspect of the national economy, · obviously the time to be allocated for producing a useful macro-model must be measured in years. Klein puts it as follows : To build a realistic model of the American economy requires a year in data collection and preparation, another year in estimation with much experimentation following both false and fruitful leads, and finally years more of testing the model, applying it to practical problems. Every two or three years the model must be revised to keep it up to date. The magnitude of the effort involved is a definite drawback of the approach. [7, p. 269]. Unfortunately, the effort required is in no way proportional to the size of the country

An Assessment of QEC Forecasts 1984-94. Quarterly Economic Commentary Special Article, Autumn 1995

All regular economic forecasters should carry out periodic assessments of the accuracy of their forecasts. These are not normally for publication, but rather to assure themselves that there are no systematic biases in their work and to identify avoidable weaknesses in their forecasting approach. In an ideal world, published assessments of the forecasting record over a suitable period should be undertaken by a disinterested third party, preferably including a comparative study of forecasts from different sources. In the real world, third parties have proved uninterested rather than disinterested, leaving the individual forecaster to decide whether to publish his or her own assessments

Quarterly Economic Commentary, December 1997

For the fourth successive year, the Irish economy has performed extremely well in 1997. Real GDP is estimated to have increased by about 10½ per cent and real GNP by 9 per cent, above even the average growth rate of the previous three years. The growth has remained well balanced between exports and domestic demand, with the result that the current account of the balance of payments is estimated to have risen to 2¾ per cent of GNP while annual average employment is estimated to have increased by about 57,000 or over 4¼ per cent. Unemployment, including long term unemployment, has declined significantly, and the standardised unemployment rate for 1997 is likely to have been less than 10 per cent when final revisions are made. The public finances have been exceptionally strong, with a general government surplus having been achieved, and consumer price inflation has averaged 1½ per cent. Economic growth will continue to be rapid by historical or international standards in 1998, but considerable uncertainty surrounds the actual rate of growth that can be expected. The impact of the Asian financial crisis, and of countervailing measures by major western economies, on world output and trade cannot yet be assessed with accuracy. While currency volatility on a world basis appears set to continue, its precise evolution cannot be foreseen, and, more specifically, it is still too early for a final decision to be made on the bilateral exchange rates of the Irish pound within EMU. Making what we hope are balanced assumptions regarding such uncertainties, we forecast that real GNP will grow by about 6 per cent in 1988, implying a significant slowing of expansion in the course of the year. Total employment is projected to increase by 42,000 on an annual average basis, and the unemployment rate to decline to an average of 9¼ per cent. The public finances should remain strong, with a further general government surplus, but a major improvement over the Budget targets seems unlikely in 1998. With export growth projected to slacken and a deterioration likely in the terms of trade, the current account is forecast to fall quite sharply, although remaining in comfortable surplus. Price inflation will almost certainly accelerate, and on our assumptions the annual increase in the consumer price index seems likely to be in the region of 2¼ per cent. If the depreciation in the trade-weighted value of the Irish pound is larger and comes sooner than we have assumed, the annual average increase in prices will be greater, and could well exceed 3 per cent. This would have relatively little effect on the forecast rate of growth of real GNP in 1998, although it could alter its composition. Given the unavoidable uncertainties concerning economic prospects in 1998 and beyond, it would be most unfortunate if euphoria generated by the economic performance of the past four years were to undermine the self-discipline which was an essential contributing factor in that success. To realise the potential for sustained high growth in the coming years it is necessary that prudence and realism continue to be exercised by government, interest groups, institutions and individuals. Favourable long-term factors could be negated by short-term impatience and unrealistic expectations

Quarterly Economic Commentary, Winter 1992/3

On the partial evidence so far available, it seems likely that there was a slight decline in economic activity in the final quarter of 1992. However, the economy had been expanding quite rapidly before the September currency crisis, so that the annual growth rate of real GNP in 1992 is estimated at 2% per cent. The conditions of international uncertainty and very high domestic interest rates, which were responsible for the downturn in late 1992, have persisted for most of the first quarter of 1993. It is thus reasonable to assume that the economy continued to stagnate or decline. The restoration of industrial competitiveness through the devaluation of the Irish pound, the subsequent reduction in domestic interest rates, and the injection of substantial EC capital funds should all help to reverse this decline. Nevertheless the outlook for 1993 remains very uncertain, and this uncertainty is likely to be compounded by the absence of trade statistics for the first half of the year. Any forecast must be regarded as tentative, and subject to a large margin of error. With this proviso, the least unlikely outcome for 1993 is a growth of real GNP of about 1 per cent, price inflation of 3 per cent, consolidation of the current account balance of payments surplus at about 6 per cent of GNP, and a small decline in the average number at work..

Quarterly Economic Commentary, July 1997

The rapid growth of the Irish economy is continuing. It now seems likely that real GNP in 1997 will increase by about 7 per cent, compared with the annual average rise of 7Yz per cent shown in official estimates for the past three years. Annual average employment is forecast to rise by just over 50,000, and a further substantial improvement in the public finances is certain, with the EBR perhaps falling to about £100 million or 0.2 per cent of GNP. Some slight acceleration in the rate of consumer price inflation seems likely in the second half of the year, leading to an annual average increase of about 1% per cent. However, the achievement of the authorities in maintaining the Irish pound as one of the most stable currencies in Europe, on a trade-weighted basis, over the past twelve months should preclude a more rapid rise in prices in 1997

Assessment of QEC Forecasts, 1984-90. Quarterly Economic Commentary Special Article, Spring 1991

Like most economic forecasters, we keep an informal check on the performance of our forecasts. Significant errors are analysed in the hope of minimising their recurrence in the future. There is a strong case, however, for undertaking and publishing a more structured overview of forecasting performance from time to time. Studying several years' forecasts together should indicate whether there is any tendency for errors to follow persistent patterns. Accordingly, this exercise examines the forecasts presented in Quarterly Economic Commentaries (QEC) for the years from 1984 to 1990

Manufacturing Output and Employment by Market Area. Quarterly Economic Commentary Special Article, Spring 1993

The currency instability following sterling's withdrawal from the ERM focused attention on the proportion of industrial employment dependent on the UK market or otherwise vulnerable to fluctuations in the value of sterling. Although exchange rates are now more stable, a renewed depreciation of sterling within the next few years cannot be ruled out. Thus the issue of the employment share of major overseas markets remains of interest and deserves closer examination. No definitive detailed assessment of total employment exposure to currency risks is feasible, although surveys can make a significant contribution to knowledge, especially in the difficult areas of overseas competition on the domestic market and international competition in third markets. However, as a statistical baseline, the employment dependent on different markets in 1989 can be derived from the Census of Industrial Production for that year. Taken in conjunction with the 1985 Input-Output tables, a reasonable estimate of the employment content of domestic disposal and of direct and indirect exports to the UK, other EC countries and to the rest of the world can be made. The information is obviously rather dated by now, but the basic patterns are unlikely to have been radically changed in the intervening years. A clear picture of the 1989 pattern should still provide a useful basis for the consideration of future developments

Quarterly Economic Commentary, October 1997

It now seems likely that real GNP will increase by about 7% per cent in 1997, marginally above the average growth rate of the pas.t three years. Growth will again be balanced, with both exports and domestic demand contributing strongly. As a consequence employment will also rise rapidly, with a net increase of over 50,000 in the annual average number at work. Despite the prolonged boom, inflation remains subdued, with the annual average increase in the consumer price index forecast at under 1% per cent, and average pay rises still generally conforming to the moderate terms of Partnership 2000. Improved collection, allied to the rapid growth of domestic demand, is leading to a massive rise in tax receipts, and a General Government Surplus in 1997 seems assured

The Revised CII-ESRI Survey - A Note. Quarterly Economic Commentary Special Article, July 1985

This note gives a brief description of the coverage and the results of the revised CII-ESRI Monthly Industrial Survey. As discussed in the previous article, by Conniffe, in this Commentary, up to the present the Survey could be improved on two grounds in particular, namely on the sample and on seasonality. The problem of seasonality can be partially dealt with by seasonally correcting the results along the lines suggested by Conniffe. The sample meanwhile has been enlarged and the weights used to aggregate the responses have been updated. The computer program used for the analysis has also been changed. Though not affecting the results, this affords greater flexibility in drafting the tables of responses

The Value of Cost Benefit Analysis of Road Projects. Quarterly Economic Commentary Special Article, April 1985

The Government announced in the National Plan, and is now implementing, a major increase in road expenditure. One reason why this has happened is because cost benefit studies have suggested that such an increase could be justified in economic terms. The argument that cost benefit studies in some sense "justify" additional road investment has been accepted rather uncritically in recent years, and in view of its practical consequences requires closer examination. In discussing this argument I shall refer to Sean D. Barrett and David Mooney's recent cost benefit analysis of the Naas bypass, as a good recent example of such studies. There are two basic grounds for concern at the use of cost benefit analysis to support increases in road expenditure now. First, the type of justification for road investment which cost benefit analysis is able to provide is a rather specialised one. The fact that a project shows a high rate of return on a cost benefit study does not mean that our debt problems are unlikely to be made more acute by carrying out the project, or that the effect on permanent employment will necessarily be favourable, or that many other forms of public expenditure might not perform as well or better on both counts. It is doubtful whether an expansion of road investment represents an appropriate use of the very limited funds which can be assembled for expanding publicly funded activities, and we are only going to find out whether it is or not if we can develop techniques which will indicate what the likely effects of particular types of public expenditure on employment and the public finances are going to be