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Official Economic Forecasting: the Relevance of the Canadian Experience for Transitional Economies

Grady, Patrick (1996): Official Economic Forecasting: the Relevance of the Canadian Experience for Transitional Economies.

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Abstract

Ministries of Economy (MoEs) in the transitional economies of the Former Soviet Union have been given the responsibility for economic forecasting. They have usually been created out of Ministries of Planning (MoPs). The required transformation from planning to forecasting, which requires a fundamental change in mindset and approaches, is discussed in the first part of this paper.

In making this transformation from a MoP to a true MoE, there is much that official forecasters in transition economies can learn about economic forecasting from the experience of industrialized countries such as Canada. A brief overview of official economic forecasting as it is currently practised in Canada is provided in this paper. This includes econometric modelbased forecasting at the Department of Finance and the Bank of Canada and the recent prudent approach to fiscal forecasting initiated by the current Finance Minister to reduce the risk of unpleasant deficit surprises and thereby gain more credibility for fiscal policy. The adoption of the prudent approach underlines the perceived weakness of economic forecasting even in advanced industrialized economies. A summary of the advantages of forecasting with macroeconomic models based on the Canadian experience is presented in the paper.

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