You are on page 1of 24

Erdug ri Jryhuqruv ri wkh Ihghudo Uhvhuyh V|vwhp

Lqwhuqdwlrqdo Ilqdqfh Glvfxvvlrq Sdshuv

Qxpehu 9<:

Iheuxdu| 5334

IRUHFDVW XQFHUWDLQW\ LQ HFRQRPLF PRGHOLQJ

Qhlo U1 Hulfvvrq

QRWH= Lqwhuqdwlrqdo Ilqdqfh Glvfxvvlrq Sdshuv duh suholplqdu| pdwhuldov flufxodwhg
wr vwlpxodwh glvfxvvlrq dqg fulwlfdo frpphqw1 Uhihuhqfhv wr Lqwhuqdwlrqdo Ilqdqfh
Glvfxvvlrq Sdshuv +rwkhu wkdq dq dfnqrzohgjphqw wkdw wkh zulwhu kdv kdg dffhvv wr
xqsxeolvkhg pdwhuldo, vkrxog eh fohduhg zlwk wkh dxwkru ru dxwkruv1 Uhfhqw LIGSv
duh dydlodeoh dw zzz1ihghudouhvhuyh1jry2sxev2ligs2 rq wkh Zhe1
IRUHFDVW XQFHUWDLQW\ LQ HFRQRPLF PRGHOLQJ

Qhlo U1 HulfvvrqW

Devwudfw= Wklv sdshu surylghv dq lqwurgxfwlrq wr iruhfdvw xqfhuwdlqw| lq hpslulfdo
hfrqrplf prgholqj1 Iruhfdvw xqfhuwdlqw| lv ghqhg/ ydulrxv phdvxuhv ri iruhfdvw
xqfhuwdlqw| duh h{dplqhg/ dqg vrph vrxufhv dqg frqvhtxhqfhv ri iruhfdvw xqfhuwdlqw|
duh dqdo|}hg1 Hpslulfdo looxvwudwlrqv zlwk wkh X1V1 wudgh edodqfh/ X1N1 lq dwlrq dqg
uhdo qdwlrqdo lqfrph/ dqg wkh X1V12X1N1 h{fkdqjh udwh khos foduli| wkh lvvxhv lqyroyhg1

Nh|zrugv= hfrqrphwulfv/ hfrqrplfv/ iruhfdvwlqj/ prghov/ xqfhuwdlqw|1

MHO fodvvlfdwlrqv= F4/ F861

 Fkdswhu 8 lq Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ Gdylg I1 Khqgu| dqg Qhlo U1 Hulfvvrq +hgv1,/
PLW Suhvv/ iruwkfrplqj1 Wkh dxwkru lv d vwd hfrqrplvw lq wkh Glylvlrq ri Lqwhuqdwlrqdo Ilqdqfh/
Erdug ri Jryhuqruv ri wkh Ihghudo Uhvhuyh V|vwhp/ Zdvklqjwrq/ G1F1 53884 X1V1D1/ dqg pd| eh
uhdfkhg rq wkh Lqwhuqhw dw hulfvvrqCiue1jry1 Wklv sdshu zdv lqlwldoo| suhsduhg dv dq lqylwhg ohfwxuh
iru Vhfwlrq I +Hfrqrplfv, ri wkh Eulwlvk Dvvrfldwlrq iru wkh Dgydqfhphqw ri Vflhqfh dw wkhlu dqqxdo
frqihuhqfh lq Vkh!hog/ Hqjodqg/ rq Vhswhpehu 464:/ 4<<<1 Wkh ylhzv lq wklv sdshu duh vroho|
wkh uhvsrqvlelolw| ri wkh dxwkru dqg vkrxog qrw eh lqwhusuhwhg dv uh hfwlqj wkh ylhzv ri wkh Erdug
ri Jryhuqruv ri wkh Ihghudo Uhvhuyh V|vwhp ru ri dq| rwkhu shuvrq dvvrfldwhg zlwk wkh Ihghudo
Uhvhuyh V|vwhp1 L dp judwhixo wr Mxold Fdpsrv/ Folyh Judqjhu/ Gdylg Khqgu|/ Mdlph Pdutxh}/
dqg Kd|ghq Vplwk iru khosixo frpphqwv dqg glvfxvvlrq> wr Kd|ghq Vplwk iru uhvhdufk dvvlvwdqfh>
wr Mxujhq Grruqln iru surylglqj ph zlwk d ehwd0whvw frs| ri JlyhZlq Yhuvlrq 5=33> dqg wr wkh
Edqn ri Hqjodqg iru shuplvvlrq wr uhsulqw wkh idq fkduw dqg ghqvlw| ixqfwlrq lq Iljxuhv 5 dqg 61
Doo qxphulfdo uhvxowv zhuh rewdlqhg xvlqj SfJlyh Surihvvlrqdo Yhuvlrq <= vhh Grruqln dqg Khqgu|
+4<<9,1 Gdwd dqg rxwsxw olvwlqjv iru wklv sdshu*v hpslulfdo uhvxowv duh dydlodeoh iurp wkh dxwkru dqg
dw zzz1ihghudouhvhuyh1jry2sxev2ligs2533429<:2ghidxow1kwp rq wkh ZruogZlgh Zhe1
4 Lqwurgxfwlrq
Wklv sdshu frqvlghuv iruhfdvw xqfhuwdlqw| lq hfrqrphwulf prgholqj/ dqdo|}lqj dw d
jhqhudo ohyho fhuwdlq vrxufhv ri xqfhuwdlqw| suhvhqw lq hfrqrplf iruhfdvwlqj1 Hfr0
qrplf iruhfdvwv ihdwxuh surplqhqwo| lq exvlqhvv ghflvlrq0pdnlqj/ jryhuqphqw srolf|
dqdo|vlv/ dqg hfrqrplf uhvhdufk1 Hfrqrplf iruhfdvwv w|slfdoo| glhu iurp wkh uhdo0
l}hg rxwfrphv/ zlwk glvfuhsdqflhv ehwzhhq iruhfdvwv dqg rxwfrphv uh hfwlqj iruhfdvw
xqfhuwdlqw|1 Ghshqglqj xsrq wkh ghjuhh ri iruhfdvw xqfhuwdlqw|/ iruhfdvwv pd| udqjh
iurp ehlqj kljko| lqirupdwlyh wr ehlqj frpsohwho| xvhohvv iru wkh wdvnv dw kdqg1
Irxu lvvxhv duh fhqwudo wr wkh glvfxvvlrq ri iruhfdvw xqfhuwdlqw|=
41 zkdw iruhfdvw xqfhuwdlqw| lv/
51 zkdw lw ghshqgv xsrq/
61 krz iruhfdvw xqfhuwdlqw| pljkw eh phdvxuhg/ dqg
71 krz phdvxuhv ri iruhfdvw xqfhuwdlqw| pljkw eh xvhg lq sudfwlfh1
Phdvxuhv ri iruhfdvw xqfhuwdlqw| kdyh qxphurxv xvhv1 Iru lqvwdqfh/ sulru wr wkh
uhdol}dwlrq ri rxwfrphv/ d phdvxuh ri iruhfdvw xqfhuwdlqw| surylghv dq dvvhvvphqw ri
wkh h{shfwhg ru suhglfwhg xqfhuwdlqw| ri wkh iruhfdvw huuruv/ khoslqj wr txdoli| wkh
iruhfdvwv wkhpvhoyhv dqg wr foduli| wkh h{shfwhg udqjh ri olnho| rxwfrphv1 Dovr/ rqfh
rxwfrphv duh nqrzq/ wkh fruuhvsrqglqj iruhfdvw huuruv dqg wkh dqwlflsdwhg iruhfdvw
xqfhuwdlqw| fdq khos hydoxdwh wkh prghov iurp zklfk wkh iruhfdvwv zhuh jhqhudwhg1
Vhfwlrq 5 h{dplqhv zkdw iruhfdvw xqfhuwdlqw| lv/ dqg lw dovr frqvlghuv vrph phd0
vxuhv ri iruhfdvw xqfhuwdlqw| dqg vrph srvvleoh sudfwlfdo frqvhtxhqfhv ri iruhfdvw
xqfhuwdlqw|1 Vhfwlrq 6 glvfxvvhv yh srvvleoh vrxufhv ri iruhfdvw xqfhuwdlqw|/ irfxvlqj
rq wzr lq sduwlfxodu= rqh lv dvvrfldwhg zlwk ixwxuh vkrfnv wr wkh hfrqrp|/ dqg wkh
rwkhu dulvhv iurp hvwlpdwlqj wkh iruhfdvw prgho1 Vhfwlrq 6 dovr kljkoljkwv krz dq0
wlflsdwhg iruhfdvw xqfhuwdlqw| lv dhfwhg e| wkh fkrlfh ri yduldeoh ehlqj iruhfdvw/ wkh
w|sh ri iruhfdvw prgho +zkhwkhu vwdwlf ru g|qdplf,/ wkh iruhfdvw krul}rq/ wkh lqirupd0
wlrq dydlodeoh/ dqg wkh xqghuo|lqj hfrqrplf surfhvv1 Wr looxvwudwh wkh ydulrxv lvvxhv
dvvrfldwhg zlwk iruhfdvw xqfhuwdlqw|/ wklv sdshu gudzv rq vhyhudo hpslulfdo h{dpsohv/
lqfoxglqj wkh Edqn ri Hqjodqg*v lq dwlrq iruhfdvw/ iruhfdvwv ri wkh X1V1 wudgh edodqfh/
iruhfdvwv ri wkh X1V12X1N1 h{fkdqjh udwh/ dqg iruhfdvwv ri X1N1 qdwlrqdo lqfrph1
Vrph suholplqdu| frpphqwv zloo dlg lq iroorzlqj wkh suhvhqwdwlrq ehorz1 Wklv
sdshu suhvxssrvhv dq xqghuvwdqglqj ri krz hfrqrplvwv iruhfdvw rq wkh ohyho ri wkh
suhvhqwdwlrq lq Khqgu| +5334,1 Iru wkh prvw sduw/ wkh fxuuhqw sdshu uhvwulfwv lwvhoi
wr wlph vhulhv prghov dqg hfrqrphwulf prghov dv wkh wrrov iru iruhfdvwlqj lwvhoi1 Ixu0
wkhu/ wkhvh prghov duh dvvxphg wr eh zhoo0vshflhg1 Fohphqwv dqg Khqgu| +4<<;,/
Fohphqwv dqg Khqgu| +4<<<,/ dqg Hulfvvrq dqg Pdutxh} +4<<;, frqvlghu vrph ri wkh
jhqhudol}dwlrqv uhtxluhg dqg lpsolfdwlrqv iru vlwxdwlrqv lq zklfk wkh hpslulfdo iruh0
fdvw prgho lv plv0vshflhg dqg iru zklfk wkdw plv0vshflfdwlrq lv lpsruwdqw1 Zdoolv
+4<<<e, lqwhu dold glvfxvvhv ydulrxv zd|v ri fkdudfwhul}lqj iruhfdvw xqfhuwdlqw| lq

4
-75 -75
Trade balance Alternative trade balance
Forecast Forecast
-100 -100

-125 -125

-150 -150

-175 -175
1985 1986 1987 1988 1985 1986 1987 1988
25 25
Forecast error Alternative forecast error

0 0

-25 -25

-50 -50
1985 1986 1987 1988 1985 1986 1987 1988

Iljxuh 4= Iruhfdvwv/ rxwfrphv/ dqg iruhfdvw huuruv ri wkh X1V1 wudgh edodqfh/ zlwk
dowhuqdwh rxwfrphv dqg iruhfdvw huuruv ri wkh wudgh edodqfh1

pdfurhfrqrplf prgholqj1 Fohphqwv dqg Khqgu| +5334, surylgh h{whqvlyh vxppdulhv
rq p|uldg idfhwv ri iruhfdvwlqj jhqhudoo|1 Ilqdoo|/ dqg dw d yhu| sudfwlfdo ohyho/ jxuhv 
zklfk duh fhqwudo wr wkh sdshu*v h{dpsohv  riwhq dsshdu dv sdqhov ri judskv/ zlwk
hdfk judsk lq d sdqho odehohg vhtxhqwldoo| e| d vx!{ @c Kc Sc    c urz e| urz1

5 Iruhfdvwv/ Rxwfrphv/ dqg Iruhfdvw Huuruv
Wklv vhfwlrq glvfxvvhv dw dq lqwxlwlyh ohyho zkdw iruhfdvw xqfhuwdlqw| lv/ wkurxjk h{0
dplqlqj iruhfdvwv/ rxwfrphv/ dqg iruhfdvw huuruv1 Vhfwlrq 514 ghqhv dqg looxvwudwhv
zkdw lv phdqw e| iruhfdvw xqfhuwdlqw|/ dqg Vhfwlrq 515 frqvlghuv ydulrxv phdvxuhv
ri iruhfdvw xqfhuwdlqw| dqg vrph srvvleoh hfrqrplf frqvhtxhqfhv ri iruhfdvw xqfhu0
wdlqw|14

514 Iruhfdvw Xqfhuwdlqw|
Iruhfdvw xqfhuwdlqw| uh hfwv wkh glvshuvlrq ri srvvleoh rxwfrphv uhodwlyh wr wkh iruh0
fdvw ehlqj pdgh1 Iljxuh 4 looxvwudwhv wklv qrwlrq wkurxjk wkh iruhfdvwv dqg rxwfrphv
4
Vwulfwo| vshdnlqj/ iruhfdvw xqfhuwdlqw| vkrxog eh fdoohg iruhfdvw huuru xqfhuwdlqw| ehfdxvh
wkh iruhfdvw huuru lv zkdw lv xqfhuwdlq/ qrw wkh iruhfdvw1 Krzhyhu/ iroorzlqj frpprq xvdjh lq wkh
olwhudwxuh/ dqg iru euhylw|*v vdnh/ wkh skudvh iruhfdvw xqfhuwdlqw| lv xvhg wkurxjkrxw wklv sdshu1

5
ri wkh X1V1 wudgh edodqfh/ zklfk lv wkh ydoxh ri h{sruwv plqxv wkh ydoxh ri lpsruwv1
Iljxuh 4d +wkh xsshu ohiw judsk lq wkh sdqho, sorwv wkh iruhfdvwv iurp d yhfwru dxwruh0
juhvvlyh prgho +ghvfulehg lq Pdutxh} dqg Hulfvvrq +4<<6,,/ dorqj zlwk wkh rxwfrphv
ri wkh wudgh edodqfh1 Wkh iruhfdvw huuruv duh vlpso| wkh rxwfrphv plqxv wkh iruhfdvwv/
dqg duh sorwwhg lq Iljxuh 4f/ gluhfwo| ehorz Iljxuh 4d1
Wkhvh iruhfdvw huuruv duh fdofxodwhg iurp wkh revhuyhg rxwfrphv iru wkh wudgh edo0
dqfh1 Krzhyhu/ wkh rxwfrphv frxog kdyh ehhq rwkhuzlvh1 Wkh ixwxuh wudgh edodqfh lv
qrw nqrzq lq dgydqfh/ dqg lw frxog wdnh d udqjh ri ydoxhv1 Iljxuh 4e sorwv dq dowhu0
qdwh vhtxhqfh ri rxwfrphv iru wkh wudgh edodqfh/ dorqj zlwk wkh vdph +ruljlqdo, vhw
ri iruhfdvwv> dqg Iljxuh 4g sorwv wkh fruuhvsrqglqj vhw ri dowhuqdwh iruhfdvw huuruv1
Glhuhqw vhtxhqfhv ri rxwfrphv frxog kdyh rffxuuhg/ lpso|lqj glhuhqw vhtxhqfhv ri
iruhfdvw huuruv1 D zkroh udqjh ri rxwfrphv frxog dulvh/ vrph ri wkhp ehlqj pruh
olnho| wkdq rwkhuv1 Wkdw hqwdlov d glvwulexwlrq ri iruhfdvw huuruv1
Judskv surylgh d frqyhqlhqw phdqv iru h{suhvvlqj wkh glvwulexwlrq  dqg khqfh
wkh xqfhuwdlqw|  dvvrfldwhg zlwk wkh iruhfdvw huuruv1 Iru h{dpsoh/ wkh Edqn ri Hqj0
odqg sruwud|v iruhfdvw xqfhuwdlqw| lq dq lqjhqlrxv pdqqhu wkurxjk wkh idq fkduwv
wkdw lw kdv ehhq sxeolvklqj uhfhqwo| iru lwv iruhfdvwv ri erwk JGS jurzwk dqg lq d0
wlrq> vhh wkh Edqn ri Hqjodqg +5333/ s1 ly,1 Iljxuh 5 uhsurgxfhv wkh Edqn*v idq fkduw
iru lwv Qryhpehu 5333 iruhfdvw ri USL[ lq dwlrq15 Wkh Edqn ghvfulehv wklv judsk dv
iroorzv1

Wkh idq fkduw ghslfwlqj wkh suredelolw| glvwulexwlrq iru lq dwlrq lv
udwkhu olnh d frqwrxu pds1 Dw dq| jlyhq srlqw gxulqj wkh iruhfdvw shulrg/
wkh ghswk ri vkdglqj uhsuhvhqwv wkh khljkw ri wkh suredelolw| ghqvlw| ixqf0
wlrq ryhu d udqjh ri rxwfrphv iru lq dwlrq1 Wkh gdunhvw edqg lqfoxghv wkh
fhqwudo +vlqjoh prvw olnho|, surmhfwlrq dqg fryhuv 43( ri wkh suredelolw|1
Hdfk vxffhvvlyh sdlu ri edqgv lv gudzq wr fryhu d ixuwkhu 43( ri wkh sure0
delolw|/ xqwlo <3( ri wkh suredelolw| glvwulexwlrq lv fryhuhg1 Wkh edqgv
zlghq dv wkh wlph krul}rq lv h{whqghg/ lqglfdwlqj lqfuhdvlqj xqfhuwdlqw|
derxw rxwfrphv1 Edqn ri Hqjodqg +5333/ Fkduw 5/ s1 ly,

Wkh idq fkduw vxppdul}hv wkh Edqn*v suhglfwhg ru dqwlflsdwhg suredelolw| glvwulexwlrq
ri lq dwlrq rxwfrphv dw glhuhqw iruhfdvw krul}rqv1
Wkh Edqn ri Hqjodqg +5333/ Fkduw 917/ s1 99, dovr sxeolvkhg wkh ghqvlw| ixqfwlrq
fruuhvsrqglqj wr wkdw glvwulexwlrq dw wzr |hduv rxw  wkdw ghqvlw| dsshduv lq Iljxuh 61
Iurp Iljxuh 6/ wkh Edqn*v <3( frqghqfh lqwhuydo iru dqqxdo lq dwlrq lq wkh wzhoyh
prqwkv 5335T45335T7 lv iurp I wr eI +dssur{lpdwho|,/ dv lqglfdwhg e| wkh vkdghg
5
USL[ lv wkh X1N1 uhwdlo sulfhv lqgh{ iru doo lwhpv/ h{foxglqj pruwjdjh lqwhuhvw sd|phqwv1 Wkh
Edqn ri Hqjodqg*v lq dwlrq wdujhw lv ghqhg lq whupv ri USL[ lq dwlrq1
Dovr/ qrwh wkdw/ lq wkh Edqn ri Hqjodqg*v judsk irupdw/ wlfn pdunv dsshdu dgmdfhqw wr wkh qxpehuv
rq wkh uljkw0kdqg vlgh |0d{lv1 Lq Iljxuh 5/ dqg lq Iljxuh 6 ehorz/ wkhvh qxpehuv duh dozd|v qrq0
qhjdwlyh/ dqg wkh wlfn pdunv vkrxog qrw eh plv0lqwhusuhwhg dv plqxv vljqv1

6
Percentage increase in prices on a year earlier
5

4

3

2.5

2

1

0
1996 97 98 99 2000 01 02

Iljxuh 5= Wkh Edqn ri Hqjodqg*v Qryhpehu 5333 idq fkduw iru surmhfwlrqv ri USL[
lq dwlrq1

Probability, per cent
6

5

90% probability
4

3

2

1

0
-1 0 1 2 3 4 5 6
Inflation

Iljxuh 6= Wkh Qryhpehu 5333 surmhfwlrq e| wkh Edqn ri Hqjodqg iru wkh suredelolw|
ghqvlw| ri USL[ lq dwlrq lq wkh |hdu wr 5335T71

7
Normal variable (variance = 100) Normal variable (variance = 100/9)
.12 .12
.1 .1
.08 .08
.06 .06
.04 .04
.02 .02
0 0
-30 -20 -10 0 10 20 30 -30 -20 -10 0 10 20 30
Uniform variable (variance = 100) Bimodal variable (variance = 100)
.12 .12
.1 .1
.08 .08
.06 .06
.04 .04
.02 .02
0 0
-30 -20 -10 0 10 20 30 -30 -20 -10 0 10 20 30

Iljxuh 7= Irxu h{dpsohv ri srvvleoh klvwrjudpv +glvsod|hg dv uhfwdqjohv, dqg hvwl0
pdwhg ghqvlwlhv +, iru iruhfdvw huuruv1

duhd lq wkh judsk1 Rwkhu rxwfrphv iru lq dwlrq frxog rffxu rxwvlgh wkdw udqjh/ exw wkh
suredelolw| ri wkrvh rxwfrphv lv eholhyhg wr eh uhodwlyho| vpdoo16 Vhh Zdoolv +4<<<d,
dqg Kdwfk +5334, iru ixuwkhu ghwdlov rq idq fkduwv dqg iruhfdvwlqj dw wkh Edqn ri
Hqjodqg1
Ghqvlwlhv ri rxwfrphv duh yhu| xvhixo zkhq wklqnlqj derxw iruhfdvw huuruv/ dv
vxfk ghqvlwlhv irupdol}h zklfk rxwfrphv duh uhodwlyho| olnho| dqg zklfk duh uhodwlyho|
xqolnho|1 Wkhuh duh pdq| srvvleoh glvwulexwlrqv iru iruhfdvw huuruv/ dqg wkh suhflvh
qdwxuh ri wkrvh glvwulexwlrqv fdq lq xhqfh lqglylgxdov* uhvsrqvhv wr wkh fruuhvsrqglqj
xqfhuwdlqw|1 Iljxuh 7 sorwv irxu srvvleoh ghqvlwlhv zlwk fruuhvsrqglqj klvwrjudpv wr
looxvwudwh wzr ihdwxuhv= wkh ghjuhh ri glvshuvlrq/ w|slfdoo| phdvxuhg e| wkh yduldqfh>
dqg wkh jhqhulf vkdsh ri wkh ghqvlw|1 Wkh ghqvlwlhv lq Iljxuhv 7d dqg 7e kdyh wkh
vdph vkdshv  erwk duh Jdxvvldq/ ru qrupdo  exw wkh ghqvlw| lq Iljxuh 7d kdv
d yduldqfh htxdo wr qlqh wlphv wkh yduldqfh iru wkh ghqvlw| lq Iljxuh 7e1 Wkdw lv/ wkh
ghqvlw| lq Iljxuh 7d lv pxfk ohvv frqfhqwudwhg durxqg lwv phdq wkdq lv wkh ghqvlw| lq
Iljxuh 7e/ lpso|lqj wkdw wkh udqjh ri olnho| rxwfrphv lq Iljxuh 7d lv pxfk zlghu wkdq
wkh fruuhvsrqglqj udqjh lq Iljxuh 7e1 Wkxv/ wkh iruhfdvw xqfhuwdlqw| lq Iljxuh 7d lv
6
Wkh ghqvlw| ixqfwlrq lq Iljxuh 6 phdvxuhv wkh uhodwlyh iuhtxhqflhv ri rffxuuhqfh iru ydulrxv
rxwfrphv ri lq dwlrq/ dv h{shfwhg e| wkh Edqn ri Hqjodqg iurp lwv lq dwlrq iruhfdvwv1 Iljxuh 6 lv
vfdohg wr gholyhu wkh surmhfwhg suredelolw| ri lq dwlrq zlwklq 3=38 shufhqwdjh srlqwv ri dq| jlyhq
lq dwlrq udwh1 Iru lqvwdqfh/ iurp Iljxuh 6/ wkh suredelolw| ri lq dwlrq ehlqj 5( shu dqqxp +l1h1/
ehwzhhq 4=<8( dqg 5=38(, lv derxw 7(1

8
odujhu wkdq wkdw lq Iljxuh 7e1
Wkh vkdsh ri wkh ghqvlw| fdq ydu|/ hyhq iru d jlyhq yduldqfh ri wkh iruhfdvw huuruv1
Iljxuhv 7d/ 7f/ dqg 7g doo kdyh wkh vdph yduldqfh  htxdo wr 433  lpso|lqj d
vwdqgdug huuru ri 431 Krzhyhu/ wkh ghqvlwlhv lq wkrvh jxuhv kdyh ydvwo| glhuhqw
vkdshv1 Iljxuh 7f lv d xqlirup glvwulexwlrq/ zlwk htxdoo| olnho| rxwfrphv ehwzhhq
dssur{lpdwho| 4: dqg .4:1 Iljxuh 7g looxvwudwhv d elprgdo ghqvlw|/ zklfk khuh
lv wkh frpelqdwlrq ri wzr Jdxvvldq ghqvlwlhv zlwk phdqv ri dssur{lpdwho| 43 dqg
.43 hdfk17 Wkh dyhudjh rxwfrph iru hdfk ri wkh irxu ghqvlwlhv lq Iljxuhv 7d7g lv
}hur> exw }hur lv d uhodwlyho| xqolnho| rxwfrph lq Iljxuh 7g/ frqwudvwlqj zlwk +vd|,
Iljxuhv 7d dqg 7e1 Htxdoo|/ 43 dqg .43 duh uhodwlyho| olnho| rxwfrphv lq Iljxuh 7g/
exw qrw lq Iljxuh 7d/ dqg hyhq ohvv vr lq Iljxuh 7e1 Elprgdo ghqvlwlhv olnh wkh rqh
lq Iljxuh 7g pd| zhoo fkdudfwhul}h vrph hfrqrplf yduldeohv/ vxfk dv wkh ghsuhfldwlrq
udwh ri vrph h{fkdqjh udwhv/ zkhuh wkhuh pljkw eh uhodwlyho| kljk suredelolwlhv ri olwwoh
ghsuhfldwlrq dqg ri odujh ghsuhfldwlrqv +h1j1/ dv lq dq h{fkdqjh udwh fulvlv,/ exw zlwk
d orz suredelolw| ri prghudwh ghsuhfldwlrqv1 Elprgdo ghqvlwlhv dovr pd| dulvh zkhq
wkh phdq ri wkh yduldeoh vkliwv vrphwlph lq wkh vdpsoh ehlqj frqvlghuhg/ dv zlwk d
vwuxfwxudo euhdn1

515 Phdvxuhv ri Iruhfdvw Xqfhuwdlqw|
Pdq| phdvxuhv h{lvw iru vxppdul}lqj surshuwlhv ri d iruhfdvw dqg lwv fruuhvsrqglqj
iruhfdvw huuru/ lqfoxglqj wkh eldv ri wkh iruhfdvw/ wkh yduldqfh ri wkh iruhfdvw huuru/
dqg wkh phdq vtxduh iruhfdvw huuru +PVIH,/ zkhuh wkh odvw frpelqhv wkh eldv dqg
wkh yduldqfh lq d vwdwlvwlfdoo| dsshdolqj pdqqhu1 Lq jhqhudo/ wkh zkroh glvwulexwlrq ri
rxwfrphv lv ri lqwhuhvw zkhq frqvlghulqj iruhfdvw xqfhuwdlqw|1 Wkdw vdlg/ wkh sulpdu|
phdvxuh ri iruhfdvw xqfhuwdlqw| lq hfrqrplfv lv wkh phdq vtxduh iruhfdvw huuru/ zklfk
vlpsolhv wr wkh yduldqfh ri wkh iruhfdvw huuru zkhq wkh iruhfdvw lv xqeldvhg1 Zkloh
Iljxuh 7 kljkoljkwv vrph vkruwfrplqjv wr xvlqj wkh yduldqfh dqg PVIH dv phdvxuhv
ri iruhfdvw xqfhuwdlqw|/ wkh yduldqfh dqg PVIH vwloo gr fdswxuh lpsruwdqw dvshfwv
ri iruhfdvw xqfhuwdlqw| dqg vr duh frqvlghuhg lq pxfk ri wkh glvfxvvlrq ehorz1 Vhh
Fohphqwv dqg Khqgu| +4<<6, iru d ghwdlohg wkhruhwlfdo dqdo|vlv ri PVIHv dqg wkhlu
olplwdwlrqv1
Iruhfdvw xqfhuwdlqw| fdq kdyh pdq| hfrqrplf frqvhtxhqfhv1 Iru lqvwdqfh/ li wkh
iruhfdvw xqfhuwdlqw| lq Iljxuh 7d lv ylhzhg dv ehlqj frqvlghudeoh/ lqvxudqfh pljkw
eh ghvludeoh dv d phfkdqlvp iru surwhfwlqj djdlqvw xqwrzdug rxwfrphv> dqg glhuhqw
7
Iljxuh 7/ dqg dovr Iljxuhv : dqg ; ehorz/ sorw klvwrjudpv dqg hvwlpdwhg ghqvlwlhv iru vhyhudo
yduldeohv1 D klvwrjudp lv d vhw ri yhuwlfdo uhfwdqjohv/ zlwk wkh khljkw ri hdfk uhfwdqjoh uhsuhvhqwlqj
wkh yduldeoh*v iuhtxhqf| ri rffxuuhqfh lq wkh udqjh vshflhg e| wkh uhfwdqjoh*v zlgwk1 Wkh hvwlpdwhg
ghqvlw| lv d vprrwkhg lqwhusrodwlrq ri wkh klvwrjudp1 Vhh Grruqln dqg Khqgu| +4<<9, iru ghwdlov1
Lq Iljxuh 7/ hdfk klvwrjudp dqg hvwlpdwhg ghqvlw| lv ri 43/333 Prqwh Fduor +duwlfldo, udqgrp
qxpehuv jhqhudwhg wr kdyh wkh glvwulexwlrq vshflhg1

9
w|shv ri lqvxudqfh pljkw eh dydlodeoh1 Dovr/ lqglylgxdov pd| zlvk wr wdnh dgydqwdjh ri
iruhfdvw xqfhuwdlqw|1 Rqh h{dpsoh lv jdpeolqj/ zkhuh iruhfdvw xqfhuwdlqw| lv lqkhuhqw
wr wkh dfwlylw|1 Olnhzlvh/ lqyhvwphqw e| pdqxidfwxulqj upv lq pdfklqhu| dqg e|
lqglylgxdov lq wkh vwrfn pdunhw duh lqkhuhqwo| ulvn| dfwlylwlhv/ |hw wkrvh dfwlylwlhv
duh xqghuwdnhq/ zlwk wkh srvvlelolw| ri odujh vxffhvvhv ehlqj dq dwwudfwlrq ri vxfk
lqyhvwphqwv1 Wr vxppdul}h/ iruhfdvw xqfhuwdlqw| lv xeltxlwrxv lq hfrqrplfv/ dqg
pdq| frqvhtxhqfhv pd| iroorz iurp wkh suhvhqfh dqg h{whqw ri wkdw xqfhuwdlqw|1

6 Vrxufhv ri Iruhfdvw Xqfhuwdlqw|
Wklv vhfwlrq h{dplqhv wkh ghwhuplqdqwv ri iruhfdvw xqfhuwdlqw|/ irfxvlqj rq wzr lq
sduwlfxodu= rqh lv lqkhuhqw wr wkh xqfhuwdlqw| ri ixwxuh hyhqwv/ dqg wkh rwkhu ghshqgv
xsrq wkh xqfhuwdlqw| dulvlqj iurp hvwlpdwlqj wkh iruhfdvw prgho lwvhoi1 Vhfwlrqv 614
dqg 615 kljkoljkw krz wkh suhglfwhg iruhfdvw xqfhuwdlqw| lv dhfwhg e| wkh w|sh ri
iruhfdvw prgho +zkhwkhu vwdwlf ru g|qdplf, dqg wkh iruhfdvw krul}rq1 Erwk vwdwlf
dqg g|qdplf prghov kdyh sod|hg lpsruwdqw urohv lq iruhfdvwlqj> vhh Er{ dqg Mhqnlqv
+4<:3,/ Khqgu|/ Sdjdq/ dqg Vdujdq +4<;7,/ Khqgu| +4<<8/ Fkdswhu :,/ dqg Fohphqwv
dqg Khqgu| +5333, lqwhu dold1 Vhfwlrq 616 eulh | ghvfulehv vrph zd|v lq zklfk phd0
vxuhv ri iruhfdvw xqfhuwdlqw| duh xvhg lq hfrqrplfv1
Fohphqwv dqg Khqgu| +4<<;/ Fkdswhu :16/ hvshfldoo| Wdeoh :14, ghyhors d yh0irog
fdwhjrul}dwlrq iru wkh vrxufhv ri prgho0edvhg iruhfdvw huuru=
41 ixwxuh fkdqjhv lq wkh xqghuo|lqj vwuxfwxuh ri wkh hfrqrp|/
51 plv0vshflfdwlrq ri wkh prgho/
61 plv0phdvxuhphqw ri wkh gdwd lq wkh edvh shulrg iurp zklfk iruhfdvwlqj ehjlqv/
71 lqdffxudflhv lq wkh hvwlpdwhv ri prgho*v sdudphwhuv/ dqg
81 wkh fxpxodwlrq ri ixwxuh huuruv +ru vkrfnv, wr wkh hfrqrp|1
Lq sudfwlfh/ doo yh vrxufhv duh lpsruwdqw zkhq dqdo|}lqj iruhfdvw xqfhuwdlqw|1 Wr
sdudskudvh Pd{lqh Vlqjhu +4<<:/ s1 6;,/ wkh xqfhuwdlqw| iurp Lwhpv 46 uh hfwv zkdw
zh grq*w nqrz wkdw zh grq*w nqrz1 Wkhvh vrxufhv ri xqfhuwdlqw| olh eh|rqg wkh vfrsh
ri wklv sdshu/ exw vhh Khqgu| +5334,1 E| frqwudvw/ Lwhpv 7 dqg 8 duh suhglfwdeoh lq
wkh vhqvh wkdw wkh ghjuhh ri xqfhuwdlqw| dulvlqj iurp wkhp fdq eh dqwlflsdwhg dqg
hyhq fdofxodwhg1 Wkhvh vrxufhv ri xqfhuwdlqw| dulvh iurp zkdw zh gr nqrz wkdw zh
grq*w nqrz1 Wklv sdshu irfxvhv rq Lwhpv 7 dqg 8/ dqg sulpdulo| rq Lwhp 81
Dw d pruh survdlf ohyho/ iruhfdvw xqfhuwdlqw| ghshqgv xsrq wkh yduldeoh ehlqj
iruhfdvw/ wkh w|sh ri prgho xvhg iru iruhfdvwlqj/ wkh hfrqrplf surfhvv dfwxdoo| ghwhu0
plqlqj wkh yduldeoh ehlqj iruhfdvw/ wkh lqirupdwlrq dydlodeoh/ dqg wkh iruhfdvw krul}rq1
Rq wkh uvw/ vrph yduldeohv pd| eh lqkhuhqwo| pruh gl!fxow wr iruhfdvw wkdq rwk0
huv1 Iru lqvwdqfh/ lpsruwv dqg h{sruwv hdfk pljkw eh kljko| suhglfwdeoh/ dqg jrrg
prghov pljkw h{lvw iru iruhfdvwlqj wkhp1 Wkh wudgh edodqfh  wkdw lv/ wkh ydoxh ri
h{sruwv plqxv lpsruwv  pljkw eh txlwh gl!fxow wr iruhfdvw1 Vshflfdoo|/ e| ehlqj

:
wkh glhuhqfh ehwzhhq wzr uhodwlyho| odujh txdqwlwlhv +h{sruwv dqg lpsruwv,/ wkh wudgh
edodqfh lv lwvhoi d uhodwlyho| vpdoo txdqwlw|/ zkhuhdv lwv iruhfdvw huuru uh hfwv wkh iruh0
fdvw huuruv ri erwk lpsruwv dqg h{sruwv1 Dv dqrwkhu h{dpsoh/ iruhfdvwlqj wkh ohyho
ri wkh h{fkdqjh udwh pljkw eh uhodwlyho| hdv|/ lq wkdw wkh h{fkdqjh udwh lq +vd|, d
prqwk*v wlph lv olnho| wr eh forvh wr wrgd|*v h{fkdqjh udwh1 Wkdw vdlg/ iruhfdvwlqj wkh
fkdqjh lq wkh h{fkdqjh udwh ryhu wkh qh{w prqwk frxog eh txlwh gl!fxow1 Wkxv/ wkh
sduwlfxodu yduldeohv ehlqj iruhfdvw dqg wkh wudqvirupdwlrqv dssolhg wr wkrvh yduldeohv
fdq dhfw wkh ghjuhh ri iruhfdvw xqfhuwdlqw| suhvhqw1
Vhfrqgo|/ iruhfdvw xqfhuwdlqw| ghshqgv xsrq wkh prgho wkdw lv ehlqj xvhg iru
iruhfdvwlqj1 Vrph prghov pd| vlpso| eh ehwwhu iru iruhfdvwlqj wkdq rwkhuv1 Dovr/
wkh suhflvh irup ri wkh prgho ghwhuplqhv wkh dqwlflsdwhg iruhfdvw xqfhuwdlqw| lq oljkw
ri wkdw prgho/ dv glvwlqfw iurp wkh dfwxdo iruhfdvw xqfhuwdlqw| wkdw dulvhv1 Wkdw
glvwlqfwlrq h{lvwv ehfdxvh d prgho lv d vlpsolhg fkdudfwhul}dwlrq ri wkh hfrqrp|/ qrw
d uhsurgxfwlrq ri wkh hfrqrp|1 Vrphwlphv wkdw fkdudfwhul}dwlrq lv d jrrg rqh/ dqg
vrphwlphv lw lv qrw1
Wklugo|/ dqg uhodwhgo|/ wkh xqghuo|lqj surfhvv jhqhudwlqj wkh gdwd sod|v d uroh lq
ghwhuplqlqj iruhfdvw xqfhuwdlqw|/ dv e| sodflqj olplwv rq wkh plqlpxp dfwxdo iruhfdvw
xqfhuwdlqw| rewdlqdeoh iurp d prgho1 Wkdw glvwlqjxlvkhv ehwzhhq wkh suhglfwhg iruh0
fdvw xqfhuwdlqw|  wkdw lv/ wkh iruhfdvw xqfhuwdlqw| wkdw rqh zrxog dqwlflsdwh/ jlyhq
wkh prgho  dqg wkh dfwxdo iruhfdvw xqfhuwdlqw|/ zklfk lv wkh xqfhuwdlqw| dulvlqj
iurp wkh frpelqdwlrq ri wkh prgho zlwk wkh dfwxdo ehkdylru ri wkh hfrqrplf gdwd1
Irxuwko|/ iruhfdvw xqfhuwdlqw| ghshqgv xsrq wkh lqirupdwlrq dydlodeoh iru frq0
vwuxfwlqj wkh iruhfdvwv1 Wklv dvshfw lv forvho| wlhg wr wkh ghvljq ri wkh iruhfdvw prgho1
Pruh lqirupdwlrq zrxog vhhp wr eh ehqhfldo iru iruhfdvwlqj/ dqg lw lv vr lq vrph
vlwxdwlrqv1 Wkdw vdlg/ zkhq wkh prgho lv plv0vshflhg dqg wkhuh duh vwuxfwxudo euhdnv
lq wkh gdwd/ xvh ri dgglwlrqdo lqirupdwlrq fdq dfwxdoo| lqfuhdvh iruhfdvw xqfhuwdlqw|>
vhh Fohphqwv dqg Khqgu| +4<<</ Fkdswhu 5,1
Ilqdoo|/ wkh iruhfdvw krul}rq fdq lq xhqfh wkh ghjuhh ri iruhfdvw xqfhuwdlqw|/ dv
kljkoljkwhg lq wkh Edqn ri Hqjodqg*v idq fkduw1

614 Iruhfdvw Xqfhuwdlqw| dqg Vwdwlf Prghov
Wr looxvwudwh wkh qrwlrq ri iruhfdvw xqfhuwdlqw|/ wklv vxevhfwlrq frqvlghuv wzr vlpsoh
fdvhv/ rqh ri iruhfdvwlqj d wd{l iduh/ dqg d vhfrqg ri iruhfdvwlqj uhdo qdwlrqdo lqfrph
iru wkh Xqlwhg Nlqjgrp1 Lq erwk fdvhv/ wkh prghov duh vwdwlf1
Frqvlghu iruhfdvwlqj wkh wd{l iduh iru wudyholqj qh{w Prqgd| pruqlqj iurp p|
krph wr zrun1 Iurp suhylrxv fde ulghv/ L nqrz wkdw wkh iduh lv fdofxodwhg iurp wkh
plohv wudyhohg dqg wkh wlph vshqw lq wkh fde=

u@hi ' Em2ff*4*i  E4*it |h@i*i_ n Emff*4?|i  E4?|it ? U@M

Wkh glvwdqfh wudyhohg lv 5 plohv/ dqg wkh wlph vshqw lq wkh fde lv 43 plqxwhv rq

;
dyhudjh1 Krzhyhu/ wkh dfwxdo wlph lq wkh fde ydulhv/ ghshqglqj xsrq wud!f/ wkh
zhdwkhu/ wkh djjuhvvlyhqhvv ri wkh sduwlfxodu fde gulyhu/ dqg vr rq  doo idfwruv wkdw
L grq*w nqrz fxuuhqwo|1 Wkhvh xqnqrzq idfwruv frqwulexwh wr Lwhp 8 deryh= ixwxuh
vkrfnv1 Wkxv/ L pljkw iruhfdvw d iduh ri '81331 \hw/ zkhq L dfwxdoo| wdnh wkh fde/ L
pljkw kdyh d odujhu ru vpdoohu iduh/ vxfk dv '8163 ru '71<31 Wkh iruhfdvw xqfhuwdlqw|
zrxog uh hfw p| dqwlflsdwhg yduldwlrq lq srvvleoh ohqjwkv ri wlph vshqw lq wkh fde1
Lwhp 7 frqwulexwhv wr wkh iruhfdvw huuru wkurxjk wkh lpsuhflvlrq lq wkh hvwlpdwhv
ri wkh sdudphwhuv ri wkh prgho1 Lq wkh wd{lfde h{dpsoh/ vxfk lpsuhflvlrq frxog dulvh
iurp +h1j1, p| lqfruuhfw uhfroohfwlrq wkdw wkh plqxwh fkdujh zdv '31432plqxwh/ udwkhu
wkdq wkh dfwxdo fkdujh ri '31532plqxwh/ lq zklfk fdvh wkh hvwlpdwhg irupxod deryh
iru wkh iduh lv lqdffxudwh1 Ru/ L frxog kdyh dq dowrjhwkhu lqfruuhfw prgho iru wkh
iduh1 Iru lqvwdqfh/ wkh iduh pljkw eh d dw fkdujh ehwzhhq wzr uhjlrqv ri wrzq dqg
qrw ghshqg rq wkh wlph wdnhq dw doo1 Wkdw vruw ri plv0vshflfdwlrq zrxog idoo xqghu
Lwhp 51
Uhwxuqlqj wr wkh irupxod deryh/ p| iruhfdvw iru d w|slfdo iduh pljkw eh '8133/ zlwk
d fhuwdlq dprxqw ri xqfhuwdlqw| dvvrfldwhg zlwk wkh rxwfrph1 Xqohvv +h1j1, vrph gd|v
duh nqrzq wr kdyh khdylhu ru pruh yduldeoh wud!f wkdq rwkhuv/ wkh iruhfdvw dqg wkh
iruhfdvw xqfhuwdlqw| duh lq hvvhqfh vwdwlf1 P| iruhfdvw iru qh{w Prqgd|*v iduh lv wkh
vdph dv iru qh{w Wxhvgd|*v iduh/ dqg wkh dqwlflsdwhg glvwulexwlrq ri iruhfdvw huuruv
iru qh{w Prqgd| lv wkh vdph dv iru qh{w Wxhvgd|*v1 Wkdw lv/ wkh wlplqj ri wkh qh{w
fde ulgh  lq whupv ri wkh gd| rq zklfk lw dfwxdoo| rffxuv  lv xqlpsruwdqw iru wkh
iruhfdvw dqg iru iruhfdvw xqfhuwdlqw|/ rwkhu wkdq wkdw wkh ulgh rffxuv lq wkh ixwxuh1
Dv d vhfrqg h{dpsoh/ frqvlghu prgholqj uhdo qhw qdwlrqdo lqfrph lq wkh Xqlwhg
Nlqjgrp ryhu 4<:34<<6 dqg iruhfdvwlqj lw ryhu 4<<753431 Wkh gdwd duh iurp Hulfv0
vrq/ Khqgu|/ dqg Suhvwzlfk +4<<;,/ dqg wkh prgho lv d yhu| vlpsoh rqh= qdpho|/ wkdw
uhdo qhw qdwlrqdo lqfrph +lq orjdulwkpv, lv htxdo wr dq lqwhufhsw soxv d olqhdu wuhqg
soxv dq huuru18 Dojheudlfdoo|/ wkh prgho lpsolhv wkh iroorzlqj uhodwlrq iru lqfrph lq
wkh uvw iruhfdvw shulrg +4<<7,=

?UL4ibbe ' ?|ihUiT| n E|hi?_ ULiUi?|  |hi?_bbe  n ihhLhbbe
' ?|ihUiT| n E|hi?_ ULiUi?|  bbe n ihhLhbbe c

zkhuh d vxevfulsw rq d yduldeoh lqglfdwhv wkh gdwlqj ri wkh vxevfulswhg yduldeoh/ dqg
zkhuh wkh wuhqg frh!flhqw fdswxuhv dq| {hg/ v|vwhpdwlf vkliw lq lqfrph iurp rqh
shulrg wr wkh qh{w1 Iru wklv prgho/ wkh rqh0|hdu dkhdg iruhfdvw ri lqfrph lv wkh
lqwhufhsw/ soxv wkh wuhqg frh!flhqw wlphv wkh ydoxh ri wkh wuhqg lq 4<<71 Dv wkh
vhfrqg olqh lq wkh htxdwlrq deryh lqglfdwhv/ wkh wuhqg lq 4<<7 htxdov 4<<7 lwvhoi1 Wkh
xqfhuwdlqw| dvvrfldwhg zlwk wkh iruhfdvw iru 4<<7 uh hfwv wkh glvwulexwlrq ri wkh huuru
lq 4<<7/ l1h1/ ri ihhLhbbe 1
8
Hyhq dowkrxjk 4<<7 lv vrph |hduv lq wkh sdvw/ wkh iruhfdvw shulrg ehjlqv lq 4<<7 ehfdxvh wkh
gdwh ri wkh prvw uhfhqw revhuydwlrq lq Hulfvvrq/ Khqgu|/ dqg Suhvwzlfk*v +4<<;, gdwdvhw lv 4<<61

<
10.2 Trend model 10.2 Random walk model
Actual value of income Actual value of income
Fitted value Fitted value
Forecast value Forecast value
10 10

9.8 9.8

9.6 9.6

9.4 9.4

9.2 9.2

1970 1980 1990 2000 2010 1970 1980 1990 2000 2010

Iljxuh 8= Dfwxdo/ wwhg/ dqg iruhfdvw ydoxhv iurp wkh wuhqg dqg udqgrp zdon prghov ri
dqqxdo uhdo qhw qdwlrqdo lqfrph iru wkh Xqlwhg Nlqjgrp +lq orjv,/ zlwk <8( frqghqfh
lqwhuydov iru wkh iruhfdvwv1

Frqvlghu iruhfdvwlqj wzr |hduv dkhdg1 Wkh wuhqg prgho lpsolhv wkdw lqfrph lq
4<<8 lv=

?UL4ibbD ' ?|ihUiT| n E|hi?_ ULiUi?|  |hi?_bbD  n ihhLhbbD
' ?|ihUiT| n E|hi?_ ULiUi?|  bbD n ihhLhbbD 
Wkh iruhfdvw ri lqfrph lq 4<<8 lv wkh lqwhufhsw/ soxv wkh wuhqg frh!flhqw wlphv wkh
ydoxh ri wkh wuhqg lq 4<<81 Wkh xqfhuwdlqw| dvvrfldwhg zlwk wklv iruhfdvw uh hfwv wkh
glvwulexwlrq ri wkh huuru lq 4<<8/ l1h1/ ri ihhLhbbD 1 Lq jhqhudo/ iru iruhfdvwv pxowlsoh
shulrgv dkhdg/ wkh iruhfdvw huuru iru wkh wuhqg prgho lv wkh prgho huuru iru wkh shulrg
ehlqj iruhfdvw1 Wkh qdo shulrg iruhfdvw +5343, lv 4: shulrgv dkhdg uhodwlyh wr wkh odvw
shulrg revhuyhg +4<<6,/ dqg wkh iruhfdvw huuru iru 5343 lv wkh prgho huuru iru 5343/
l1h1/ ihhLh2ff 1
Iru vwdqgdug wuhqg prghov/ wkh prgho huuruv duh dvvxphg wr eh lqghshqghqw dfurvv
wlph dqg wr kdyh wkh vdph surshuwlhv ryhu wlph/ lpso|lqj wkdw wkh iruhfdvw xqfhuwdlqw|
uhpdlqv frqvwdqw dfurvv glhuhqw iruhfdvw krul}rqv1 Zkloh wkh wuhqg lwvhoi grhv ydu|
ryhu wlph/ wkh wuhqg lv ghwhuplqlvwlf/ lpso|lqj wkdw lwv ixwxuh ydoxhv duh nqrzq/ dv
zhoo dv lwv fxuuhqw dqg sdvw ydoxhv1 Vr/ wklv wuhqg prgho lv lq hvvhqfh vwdwlf/ dqg wkh
dqwlflsdwhg iruhfdvw xqfhuwdlqw| lv frqvwdqw dfurvv glhuhqw iruhfdvw krul}rqv1
Iljxuh 8d vkrzv wkh uhvxowv iurp hvwlpdwlqj wklv wuhqg prgho dqg iruhfdvwlqj
iurp lw1 Wkh ohiw kdoi ri Iljxuh 8d sorwv dfwxdo lqfrph dqg wkh wwhg ydoxhv ri lqfrph

43
iurp wkh prgho hvwlpdwhg ryhu 4<:34<<61 Wkh uljkw kdoi ri Iljxuh 8d sorwv wkh
prgho*v iruhfdvwv/ zklfk gdwh iurp 4<<7 wkurxjk 53431 Wkh yhuwlfdo eduv durxqg
wkrvh iruhfdvwv uhsuhvhqw wkh dqwlflsdwhg <8( frqghqfh lqwhuydov iru lqfrph/ pxfk
dv wkh rxwhu hgjhv ri wkh Edqn ri Hqjodqg*v idq fkduw uhsuhvhqw wkh Edqn*v <3(
frqghqfh lqwhuydov iru lq dwlrq1 Dv lpsolhg deryh/ wkhvh <8( frqghqfh lqwhuydov
gr qrw ydu| ryhu wkh iruhfdvw krul}rq1

615 Iruhfdvw Xqfhuwdlqw| dqg G|qdplf Prghov
Gudzlqj rq h{dpsohv lqyroylqj X1N1 qdwlrqdo lqfrph/ wkh X1V12X1N1 h{fkdqjh udwh/
dqg wkh X1V1 wudgh edodqfh/ wklv vxevhfwlrq vkrzv krz g|qdplfv lq d prgho fdq
dhfw iruhfdvw xqfhuwdlqw|1 Lq sduwlfxodu/ prgho g|qdplfv riwhq lpso| wkdw iruhfdvw
xqfhuwdlqw| lqfuhdvhv zlwk wkh iruhfdvw krul}rq/ zkhuh wkh odwwhu lv wkh ohqjwk ri wlph
iurp wkh shulrg lq zklfk wkh iruhfdvw lv pdgh wr wkh shulrg ehlqj iruhfdvw1 Pdq|
hfrqrplf gdwd vhulhv duh kljko| g|qdplf/ lq wkdw wkh| duh fkdudfwhul}hg e| vwurqj
wlph ghshqghqfh/ shuvlvwhqfh/ ru phpru|1 Ylvleo|/ wkh lqfrph vhulhv lq Iljxuh 8 kdv
vwurqj shuvlvwhqfh suhvhqw/ dv gr pdq| rwkhu hfrqrplf yduldeohv/ vxfk dv h{fkdqjh
udwhv/ lqwhuhvw udwhv/ frqvxphuv* h{shqglwxuh/ dqg lq dwlrq1 Lqfrusrudwlrq ri wlph
ghshqghqfh lqwr d iruhfdvw prgho riwhq lpsolhv wkdw iruhfdvw xqfhuwdlqw| lqfuhdvhv dv
wkh iruhfdvw krul}rq ohqjwkhqv1 Wklv ihdwxuh lv h{hpsolhg e| wkh Edqn ri Hqjodqg*v
idq fkduw +Iljxuh 5 deryh,= iru lqvwdqfh/ wkh iruhfdvw xqfhuwdlqw| iru 5335T7 lv odujhu
wkdq wkdw iru 5334T41
Pdq| prghov lpso| wkdw iruhfdvw xqfhuwdlqw| ghshqgv xsrq wkh iruhfdvw krul}rq1
Rqh prgho  wkh udqgrp zdon prgho  lv hvshfldoo| xvhixo iru ghprqvwudwlqj wkdw
ghshqghqfh/ dv wkh iroorzlqj looxvwudwlrq zlwk wkh qdwlrqdo lqfrph gdwd vkrzv1 Zkhq
dssolhg wr lqfrph/ wkh udqgrp zdon prgho srvlwv wkdw lqfrph lq d jlyhq shulrg htxdov
d frqvwdqw whup ru lqwhufhsw/ soxv wkh suhylrxv shulrg*v lqfrph/ soxv d vkrfn +ru huuru
whup,/ zkhuh wkh lqwhufhsw fdswxuhv dq| {hg/ v|vwhpdwlf vkliw lq lqfrph iurp rqh
shulrg wr wkh qh{w1 Dojheudlfdoo|/ wkh prgho lpsolhv wkh iroorzlqj uhodwlrq iru lqfrph
lq wkh uvw shulrg iruhfdvw +4<<7,=

?UL4ibbe ' ?|ihUiT| n ?UL4ibb n ihhLhbbe 

+Wkh lqwhufhsw dqg huuru lq wklv htxdwlrq duh jhqhudoo| qrw wkh vdph dv wkh lqwhufhsw
dqg huuru lq wkh wuhqg prgho deryh1, Lq wklv udqgrp zdon prgho/ wkh iruhfdvw ri
lqfrph lq 4<<7 lv wkh lqwhufhsw soxv lqfrph lq 4<<6/ zkhuh wkh ydoxh ri lqfrph lq
4<<6 lv nqrzq1 Wkh dvvrfldwhg iruhfdvw xqfhuwdlqw| uh hfwv wkh glvwulexwlrq ri wkh
huuru lq wkh iroorzlqj |hdu/ l1h1/ ri ihhLhbbe 1
Iru iruhfdvwlqj wzr |hduv dkhdg/ wkh udqgrp zdon prgho lpsolhv=

?UL4ibbD ' ?|ihUiT| n ?UL4ibbe n ihhLhbbD
' E2  ?|ihUiT| n ?UL4ibb n EihhLhbbe n ihhLhbbD c

44
zkhuh wkh vhfrqg olqh lv rewdlqhg e| vxevwlwxwlrq1 Wkh iruhfdvw ri lqfrph iru 4<<8 lv
wkh lqfrph lq 4<<6 soxv wzlfh wkh ydoxh ri wkh lqwhufhsw/ dqg wklv iruhfdvw*v xqfhuwdlqw|
uh hfwv wkh glvwulexwlrq ri wkh prgho huuruv lq erwk 4<<7 dqg 4<<8/ frpelqhg dv
ihhLhbbe nihhLhbbD 1 Lq jhqhudo/ wkrvh huuruv grq*w fdqfho> udwkhu/ wkh| fxpxodwh1
Iru iruhfdvwv pxowlsoh shulrgv dkhdg/ wkh iruhfdvw huuru iurp wkh udqgrp zdon
prgho lv wkh vxp ri wkh prgho huuruv ryhu wkh iruhfdvw krul}rq1 Vr/ lq wklv prgho/ wkh
rxwfrphv ri ixwxuh lqfrph uh hfw wkh fxpxodwlrq ri vkrfnv ryhu wlph/ dv pljkw rffxu
iurp whfkqrorjlfdo lqqrydwlrq1 Iru wkh qdo shulrg iruhfdvw +5343,/ wkh fruuhvsrqglqj
iruhfdvw huuru lv wkh vxp ri doo prgho huuruv iurp 4<<7 +wkh uvw shulrg iruhfdvw,
wkurxjk 53431 Wkdw lv/ wkh iruhfdvw huuru iru 5343 lv=

ihhLhbbe n ihhLhbbD n    n ihhLh2ffb n ihhLh2ff 

Wkdw frqwudvwv zlwk wkh wuhqg prgho*v iruhfdvw huuru iru 5343/ zklfk lv mxvw ihhLh2ff 1
Iljxuh 8e sorwv wkh dfwxdo/ wwhg/ dqg iruhfdvw ydoxhv iurp wklv udqgrp zdon prgho
ri lqfrph/ xvlqj wkh vdph vdpsoh shulrgv iru hvwlpdwlrq dqg iruhfdvwlqj dv zlwk wkh
wuhqg prgho lq Iljxuh 8d1 Wkh frqghqfh lqwhuydov iru wkh udqgrp zdon iruhfdvwv lq
Iljxuh 8e lqfuhdvh yhu| vxevwdqwldoo| dv wkh iruhfdvw krul}rq lwvhoi lqfuhdvhv/ frqwudvw0
lqj zlwk frqghqfh lqwhuydov ri {hg zlgwk lq Iljxuh 8d iru wkh wuhqg prgho1
Iljxuhv 8d dqg 8e sruwud| wzr yhu| glhuhqw sdwwhuqv iru wkh dqwlflsdwhg iruhfdvw
xqfhuwdlqw|/ dqg wkhlu frpsdulvrq looxvwudwhv krz prgho fkrlfh fdq dhfw wkrvh sdw0
whuqv1 H{dfwo| wkh vdph vhulhv lv ehlqj prghohg dqg iruhfdvw lq Iljxuhv 8d dqg 8e=
rqo| wkh prghov wkhpvhoyhv glhu1 Pruh jhqhudoo|/ vwdwlf prghov frpprqo| lpso|
iruhfdvw xqfhuwdlqw| wkdw lv wlph lqyduldqw ru qhduo| vr> zkhuhdv g|qdplf prghov
w|slfdoo| lpso| wlph0ghshqghqw iruhfdvw xqfhuwdlqw|/ riwhq lqfuhdvlqj lq wkh iruhfdvw
krul}rq1 Wkh wuhqg dqg udqgrp zdon prghov deryh suhvhqw vwdwlf dqg g|qdplf uhod0
wlrqvklsv dv eodfn dqg zklwh/ exw lq sudfwlfh d zkroh vshfwuxp ri prghov h{lvwv zlwk
erwk vwdwlf dqg g|qdplf ihdwxuhv1
Lq rughu wr h{dplqh rwkhu dvshfwv ri iruhfdvw xqfhuwdlqw| dqg wr kljkoljkw wkh
frqvhtxhqfhv ri g|qdplfv lq iruhfdvwlqj/ frqvlghu dqrwkhu wlph vhulhv/ wkdw ri wkh
X1V12X1N1 h{fkdqjh udwh1 Iljxuh 9d sorwv wkh ohyho ri wklv vhulhv/ phdvxuhg lq '2Â/ ryhu
wkh shulrg 4<:453331 Wklv h{fkdqjh udwh h{klelwv yhu| frqvlghudeoh wlph ghshqghqfh1
Wkh ydoxh ri wkh h{fkdqjh udwh lq rqh shulrg lv yhu| vlplodu wr lwv ydoxh lq wkh suhylrxv
shulrg  khqfh wkh suhvhqfh ri wlph ghshqghqfh/ ru shuvlvwhqfh/ ru phpru|1 Iljxuh 9e
sorwv wkh prqwko| udwh ri fkdqjh lq wkh h{fkdqjh udwh/ h{suhvvhg dv d iudfwlrq1 Wkh
wlph ghshqghqfh ri wkh udwh ri fkdqjh lv pxfk ohvv wkdq wkdw ri wkh ruljlqdo vhulhv
lwvhoi/ dv lv w|slfdo iru pdq| hfrqrplf yduldeohv1
Wr vhh wkh ghshqghqfh ri iruhfdvw xqfhuwdlqw| rq wkh iruhfdvw krul}rq lq g|qdplf
prghov/ frqvlghu wkh hpslulfdo ghqvlw| ri wkh iruhfdvw huuru dw glhuhqw iruhfdvw krul0
}rqv zkhq xvlqj d udqgrp zdon prgho iru iruhfdvwlqj wkh h{fkdqjh udwh1 Vshflfdoo|/
Iljxuh : sorwv wkh hpslulfdo ghqvlwlhv ri wkh iruhfdvw huuruv dw iruhfdvw krul}rqv ri 4
prqwk/ 6 prqwkv/ 9 prqwkv/ < prqwkv/ 45 prqwkv/ dqg 57 prqwkv1 Dv wkh iruhfdvw

45
$/£
U.S./U.K. exchange rate (levels)
2.5

2.0

1.5

1.0
1970 1975 1980 1985 1990 1995 2000
0.1
Monthly rate of change (fraction)

0.0

-0.1
1970 1975 1980 1985 1990 1995 2000

Iljxuh 9= Wkh X1V12X1N1 h{fkdqjh udwh/ dqg lwv prqwko| udwh ri fkdqjh +dv d iudfwlrq,1

Density
20 1 month 20 3 months 20 6 months

10 10 10

0 0 0
-.4 -.2 0 .2 .4 -.4 -.2 0 .2 .4 -.4 -.2 0 .2 .4

20 9 months 20 12 months 20 24 months

10 10 10

0 0 0
-.4 -.2 0 .2 .4 -.4 -.2 0 .2 .4 -.4 -.2 0 .2 .4

Iljxuh := Klvwrjudpv dqg hvwlpdwhg ghqvlwlhv ri iruhfdvw huuruv iru wkh X1V12X1N1
h{fkdqjh udwh dw 40/ 60/ 90/ <0/ 450/ dqg 570prqwk krul}rqv +h{suhvvhg dv d iudfwlrq ri
wkh h{fkdqjh udwh,1

46
25 Histogram and density: 1971-1992 25 Histogram and density: 1993-2000

20 20

15 15

10 10

5 5

0 0
-.15 -.1 -.05 0 .05 .1 .15 -.15 -.1 -.05 0 .05 .1 .15

Iljxuh ;= Klvwrjudpv dqg hvwlpdwhg ghqvlwlhv ri rqh0prqwk dkhdg iruhfdvw huuruv iru
wkh X1V12X1N1 h{fkdqjh udwh ryhu wzr vxevdpsohv= 4<:44<<5 dqg 4<<653331

krul}rq lqfuhdvhv/ wkh ghqvlw| ehfrphv dwwhu dqg wkh glvshuvlrq ri iruhfdvw huuruv
ehfrphv odujhu/ uh hfwlqj dq lqfuhdvhg glvshuvlrq ri rxwfrphv dqg dq lqfuhdvhg iruh0
fdvw xqfhuwdlqw|1 Dw rqo| wzr |hduv rxw/ wkh xqfhuwdlqw| lv frqvlghudeoh= wkh pdmrulw|
ri fkdqjhv lq wkh h{fkdqjh udwh duh lq h{fhvv ri fI lq devroxwh ydoxh/ zlwk vrph
fkdqjhv ehlqj qhduo| DfI1 Hpslulfdoo|/ wkh iruhfdvw xqfhuwdlqw| iru wkh h{fkdqjh
udwh ghshqgv xsrq wkh iruhfdvw krul}rq/ zlwk juhdwhu xqfhuwdlqw| dw orqjhu krul}rqv 
fhuwdlqo| dq lqwxlwlyh uhvxow1
Wkh sorwv ri wkh h{fkdqjh udwh dqg lwv udwh ri fkdqjh lq Iljxuh 9 vxjjhvw dq
dowhudwlrq lq h{fkdqjh udwh ehkdylru diwhu wkh h{fkdqjh udwh fulvlv lq 4<<51 Iurp
4<<6 rqzdugv/ wkh h{fkdqjh udwh dsshduv wr eh pxfk pruh vwdeoh dqg wr kdyh pxfk
ohvv yrodwlolw| wkdq suhylrxvo|1 Wkdw fkdudfwhul}dwlrq lv dovr uh hfwhg lq wkh hpslulfdo
ghqvlwlhv ri wkh 40prqwk dkhdg iruhfdvw huuruv ryhu wkh uhvshfwlyh vxevdpsohv/ dv
sorwwhg lq Iljxuh ;d +iru 4<:44<<5, dqg Iljxuh ;e +iru 4<<65333,1 Wkh ghqvlw| ri
wkh iruhfdvw huuruv iru wkh pruh uhfhqw shulrg lv pruh frqfhqwudwhg wkdq wkh rqh iru
wkh shulrg hqglqj lq 4<<5= wkdw lv/ uhfhqw iruhfdvw huuruv kdyh whqghg wr eh vpdoohu lq
devroxwh ydoxh wkdq rqhv sulru wr 4<<61 Hpslulfdoo|/ wkh iruhfdvw huuru yduldqfh ryhu
4<<65333 lv ohvv wkdq kdoi wkdw ryhu 4<:44<<51 Wkh fkdqjh lq wkh glvwulexwlrq ri wkh
iruhfdvw huuruv vxjjhvwv d fkdqjh lq wkh ehkdylru ri wkh h{fkdqjh udwh/ zklfk pljkw
uhtxluh uhghvljq ri wkh iruhfdvw prgho1 Zkloh vxfk uhghvljq jrhv eh|rqg wkh vfrsh ri
wklv sdshu/ lw lv wkh wrslf ri pxfk fxuuhqw uhvhdufk lq hfrqrplfv> vhh Khqgu| +4<;:,/

47
forecast error variance
8

7

6
p = 1.1
5

4 p = 1.0

3 p = 0.9

2 p = 0.7
p = 0.5
1
p = 0.0

0
1 2 3 4 5 6 7 8
forecast horizon

Iljxuh <= K|srwkhwlfdo yduldqfhv ri iruhfdvw huuruv/ dv d ixqfwlrq ri wkh ghjuhh ri
shuvlvwhqfh R dqg ri wkh iruhfdvw krul}rq +lq shulrgv,1

Khqgu| +4<<8,/ Krryhu dqg Shuh} +4<<<,/ dqg Nuro}lj dqg Khqgu| +5334, lqwhu dold1
Wkh udqgrp zdon prgho  h{dplqhg khuh iru erwk uhdo qdwlrqdo lqfrph dqg wkh
h{fkdqjh udwh  hperglhv d yhu| vwulnlqj yhuvlrq ri shuvlvwhqfh/ lq zklfk sdvw vkrfnv
duh ihow iruhyhu lqwr wkh ixwxuh zlwk wkhlu ixoo hhfw1 Iru wkh udqgrp zdon prgho/ wkh
yduldqfh ri wkh iruhfdvw huuruv lqfuhdvhv lq sursruwlrq wr wkh ohqjwk ri wkh iruhfdvw
krul}rq1 Pruh jhqhudoo|/ wkh yduldqfh ri wkh iruhfdvw huuruv iurp d g|qdplf prgho
ghshqgv erwk rq wkh iruhfdvw krul}rq dqg rq wkh ghjuhh ri shuvlvwhqfh fdswxuhg e| wkh
prgho1 Vxssrvh wkdw wkh ghjuhh ri shuvlvwhqfh lv txdqwlhg e| vrph qxpehu R +R
iru shuvlvwhqfh,/ zlwk xqlw| +R ' , fkdudfwhul}lqj wkh vwurqj shuvlvwhqfh lq d udqgrp
zdon prgho/ dqg }hur +R ' f, fkdudfwhul}lqj wkh odfn ri shuvlvwhqfh lq d vwdwlf prgho1
Ghjuhhv ri shuvlvwhqfh ehwzhhq }hur dqg xqlw| duh srvvleoh/ dqg Iljxuh < sorwv krz
wkh yduldqfh ri wkh iruhfdvw huuruv pljkw ghshqg rq erwk wkh ghjuhh ri shuvlvwhqfh dqg
wkh iruhfdvw krul}rq1 Iru prghov zlwk hvwlpdwhg shuvlvwhqfh ohvv wkdq xqlw|/ iruhfdvw
xqfhuwdlqw| w|slfdoo| lqfuhdvhv lq wkh iruhfdvw krul}rq exw dv|pswrwhv wr vrph qlwh
ydoxh/ udwkhu wkdq lqfuhdvlqj zlwkrxw erxqg/ dv lw grhv iru wkh udqgrp zdon prgho19
Ilqdoo|/ frqvlghu d frpsdulvrq dfurvv 40shulrg dqg pxowlsoh0shulrg dkhdg iruhfdvwv
iurp erwk vwdwlf dqg g|qdplf prghov1 Pdutxh} dqg Hulfvvrq +4<<6, dqdo|}h lq ghwdlo
wkh iruhfdvwv iurp ydulrxv prghov ri wkh X1V1 wudgh edodqfh/ dqg wklv vxevhfwlrq qrz
9
Wkh uhvxowv lq Iljxuh < duh qrupdol}hg vxfk wkdw wkh rqh0shulrg dkhdg iruhfdvw huuru yduldqfh lv
wkh vdph iru doo ydoxhv ri s dqg htxdov xqlw|1

48
Trade balance ($ billion)
100 static model, one quarter ahead 100 static model, multiple quarters ahead
Actual value
0 Forecast 0
95% confidence interval
-100 -100

-200 -200

1985 1986 1987 1988 1985 1986 1987 1988
100 dynamic model, one quarter ahead 100 dynamic model, multiple quarters ahead

0 0

-100 -100

-200 -200

1985 1986 1987 1988 1985 1986 1987 1988

Iljxuh 43= Dfwxdo +, dqg iruhfdvw + , ydoxhv iurp wzr prghov ri wkh uhdo X1V1
wudgh edodqfh/ erwk rqh txduwhu dqg pxowlsoh txduwhuv dkhdg/ zlwk <8( frqghqfh
lqwhuydov +0 0 0, iru wkh iruhfdvwv1

h{dplqhv iruhfdvwv iurp wzr ri Pdutxh} dqg Hulfvvrq*v prghov1 Wkh uvw prgho lv
hvvhqwldoo| d vwdwlf prgho/ dqg wkh vhfrqg prgho lv d kljko| g|qdplf prgho1 +Lq wkh
qrwdwlrq ri Pdutxh} dqg Hulfvvrq +4<<6,/ wkhvh duh Prghov P4 dqg P81, Iljxuh 43
sorwv wkh iruhfdvwv/ dfwxdo rxwfrphv/ dqg <8( iruhfdvw frqghqfh lqwhuydov iru hdfk
ri wkhvh wzr prghov/ erwk rqh txduwhu dkhdg dqg iru pxowlsoh txduwhuv dkhdg1 Iru
wkh qhdu0vwdwlf prgho/ wkh zlgwk ri wkh frqghqfh lqwhuydo ydulhv rqo| voljkwo| zlwk
wkh iruhfdvw krul}rq1 Iru wkh g|qdplf prgho/ wkh zlgwk ri wkh pxowl0shulrg dkhdg
frqghqfh lqwhuydo lv kljko| ghshqghqw xsrq wkh iruhfdvw krul}rq/ zlwk pxfk odujhu
iruhfdvw xqfhuwdlqw| dw orqjhu krul}rqv1 Wkhvh pxowl0shulrg dkhdg frqghqfh lqwhuydov
duh yhu| vlplodu lq fkdudfwhu wr wkrvh lq wkh Edqn ri Hqjodqg*v idq fkduw1 Wkh idq
vkdsh ri wkh frqghqfh lqwhuydov lq erwk lqvwdqfhv vxjjhvwv wkh yhu| g|qdplf qdwxuh
ri wkh yduldeoh ehlqj iruhfdvw dqg ri wkh lpsolhg prgho ehlqj xvhg wr iruhfdvw lw1

616 Phdvxuhv ri Iruhfdvw Xqfhuwdlqw| lq Sudfwlfh
Phdvxuhv ri iruhfdvw xqfhuwdlqw| kdyh qxphurxv xvhv lq hfrqrplf sudfwlfh1 Iluvwo|/
sulru wr wkh uhdol}dwlrq ri rxwfrphv/ d phdvxuh ri iruhfdvw xqfhuwdlqw| surylghv dq
dvvhvvphqw ri h{shfwhg ru suhglfwhg xqfhuwdlqw| ri wkh iruhfdvw huuruv/ khoslqj wr
txdoli| wkh iruhfdvwv wkhpvhoyhv dqg wr jlyh d slfwxuh ri wkh h{shfwhg udqjh ri olnho|

49
rxwfrphv1 Wkdw lv/ lqirupdwlrq derxw iruhfdvw xqfhuwdlqw| lv lpsruwdqw lq dgglwlrq wr
wkh iruhfdvw lwvhoi1 Vhh Fdpsrv +4<<5,/ Eduuhoo +5334,/ Kdwfk +5334,/ Khqgu| +5334,/
dqg Rveruq/ Vhqvlhu/ dqg Vlpsvrq +5334, lqwhu dold iru hpslulfdo dssolfdwlrqv wkdw
lqfoxgh phdvxuhv ri iruhfdvw xqfhuwdlqw|1
Vhfrqgo|/ iruhfdvwv/ rxwfrphv/ wkh fruuhvsrqglqj iruhfdvw huuruv/ dqg wkh dqwlfl0
sdwhg iruhfdvw xqfhuwdlqw| fdq khos hydoxdwh wkh prghov iurp zklfk wkh iruhfdvwv zhuh
jhqhudwhg1 Iru lqvwdqfh/ li wkh iruhfdvw huuruv olh zhoo rxwvlgh wkh udqjh wkdw zdv dq0
wlflsdwhg/ wkdw lqglfdwhv vshflfdwlrq sureohpv zlwk wkh prgho1 Vxfk hydoxdwlrq kdv
ehhq fhqwudo wr whvwlqj dqg lpsurylqj hpslulfdo hfrqrplf prghov1 Vhh Fkrz +4<93,
iru wkh lqlwldo ghyhorsphqw ri wkhvh hydoxdwlrq whfkqltxhv> Fkrqj dqg Khqgu| +4<;9,/
Hulfvvrq +4<<5,/ Kdqvhq +4<<5d/ 4<<5e,/ Dqguhzv +4<<6,/ dqg Zhvw +4<<9, iru pruh
uhfhqw frqwulexwlrqv> Judqjhu +5334, iru dq ryhuylhz> Jrogihog +4<:6/ 4<:9,/ Mxgg
dqg Vfdgglqj +4<;5,/ dqg Eded/ Khqgu|/ dqg Vwduu +4<<5, iru h{dpsohv lq prgholqj
wkh ghpdqg iru prqh|> dqg Pdutxh} dqg Hulfvvrq +4<<6, dqg Hulfvvrq dqg Pdu0
txh} +4<<6, iru dqdo|vlv ri wkh X1V1 wudgh edodqfh iruhfdvwv ghvfulehg deryh1 Lq wkh
ixwxuh/ hfrqrplvwv frxog olnhzlvh h{dplqh zkhwkhu wkh Edqn ri Hqjodqg*v sxeolvkhg
frqghqfh edqgv uh hfw zkdw kdsshqhg lq wkh gdwd ru li wkrvh edqgv zhuh wrr qdu0
urz ru wrr zlgh1 Vxfk dq dqdo|vlv frxog ehqhw wkh frqvwuxfwlrq ri ixwxuh prqhwdu|
srolf|1 Dvvhvvphqw ri prgho iruhfdvwv lv dovr fhqwudo wr hydoxdwlqj wkh Oxfdv +4<:9,
fulwltxh/ zlwk fruuhvsrqglqj prgho frqvwdqf| whvwv surylglqj wkh sulpdu| hpslulfdo
edvlv iru frquplqj ru uhixwlqj wkh Oxfdv fulwltxh> vhh Khqgu| +4<;;,/ Hqjoh dqg
Khqgu| +4<<6,/ dqg Hulfvvrq dqg Lurqv +4<<8,1
Suhglfwhg iruhfdvw xqfhuwdlqw| wkxv shuplwv dvvhvvlqj krz lpsruwdqw Lwhpv 46
+lq wkh iruhfdvw huuru wd{rqrp|, duh lq frqwulexwlqj wr wkh uhdol}hg iruhfdvw huuru1
Vshflfdoo|/ Lwhpv 46 uh hfw glvfuhsdqflhv ehwzhhq wkh prgho xvhg iru iruhfdvwlqj
dqg wkh dfwxdo ehkdylru ri wkh hfrqrp|/ zlwk Lwhp 4 ehlqj sulpdulo| uhvsrqvleoh iru
iruhfdvw idloxuh lq hfrqrphwulf prghov1 Fkdqjhv lq jryhuqphqw hfrqrplf srolf| pd|
frqwulexwh wr Lwhp 4/ dv looxvwudwhg e| wkh ydulrxv srolf| vlpxodwlrqv lq Wxuqhu +5334,1
Zkloh wkh fxuuhqw sdshu ljqruhv Lwhpv 46 iru h{srvlwru| frqyhqlhqfh/ wkh| fdq eh
yhu| lpsruwdqw lq sudfwlfh1
Wklugo|/ dqg uhodwhgo|/ wkh ghjuhh ri iruhfdvw xqfhuwdlqw| suhvhqw ghshqgv lq idlu
sduw rq wkh lqirupdwlrq dydlodeoh zkhq iruhfdvwlqj1 Iruhfdvw xqfhuwdlqw| pd| ghfolqh
li wkh lqirupdwlrq dydlodeoh iru iruhfdvwlqj lv lqfuhdvhg dqg li wkdw lqirupdwlrq dhfwv
wkh yduldeohv ehlqj iruhfdvw lq d v|vwhpdwlf idvklrq1 Hruwv wr lpsuryh wkh prghov
ehlqj xvhg iru iruhfdvwlqj pd| khos uhgxfh wkh lpsolhg iruhfdvw xqfhuwdlqw|1
Irxuwko|/ d phdvxuh ri iruhfdvw xqfhuwdlqw| khosv glvwlqjxlvk ehwzhhq qxphulfdo
dffxudf| dqg vwdwlvwlfdo dffxudf| lq iruhfdvwv1 D iruhfdvw pljkw eh qxphulfdoo| lqdffx0
udwh/ exw vwdwlvwlfdoo| dffxudwh1 Iru lqvwdqfh/ wkh iruhfdvw pljkw ghyldwh frqvlghudeo|
qxphulfdoo| iurp dfwxdo rxwfrphv/ dv lq Iljxuh 43g/ zkhuh vrph ri wkh iruhfdvw huuruv
ri wkh X1V1 wudgh edodqfh duh ri wkh rughu ri ';3 eloolrq/ d frqvlghudeoh vxp1 Vwdwlv0
wlfdoo|/ wkrvh iruhfdvw huuruv duh zhoo zlwklq wkh udqjh dqwlflsdwhg iurp wkh iruhfdvw

4:
xqfhuwdlqw| dvvrfldwhg zlwk wkh prgho jhqhudwlqj wkrvh iruhfdvwv1 Frqyhuvho|/ iruh0
fdvw huuruv pljkw eh qxphulfdoo| vpdoo/ exw vwloo eh ghwhfwdeoh vwdwlvwlfdoo| dv o|lqj
rxwvlgh wkh udqjh ri dqwlflsdwhg iruhfdvw xqfhuwdlqw|1 H{suhvvhg voljkwo| glhuhqwo|/
d glvwlqfwlrq h{lvwv ehwzhhq srru iruhfdvwv  rqhv wkdw kdyh dvvrfldwhg qxphulfdoo|
odujh iruhfdvw huuruv  dqg iruhfdvw idloxuh/ lq zklfk wkh iruhfdvw huuruv duh odujhu
wkdq dqwlflsdwhg/ jlyhq wkh iruhfdvw xqfhuwdlqw| dvvrfldwhg zlwk wkh iruhfdvw prgho1
Ilqdoo|/ pdq| uhdo0olih lpsolfdwlrqv iroorz iurp wkh ghjuhh ri iruhfdvw xqfhuwdlqw|
suhvhqw1 Zh/ dv lqglylgxdov/ pdnh sodqv iru wkh ixwxuh> dqg zkdw dfwxdoo| kdsshqv
lq wkh ixwxuh dhfwv xv wkurxjk wkrvh sodqv uhodwlyh wr wkh dfwxdo rxwfrphv1 Zh
pd| wkxv dgmxvw rxu ehkdylru lq wkh idfh ri iruhfdvw xqfhuwdlqw|1 Vrphwlphv zh pd|
zlvk wr surwhfw rxuvhoyhv djdlqvw d udqjh ri rxwfrphv/ dv e| wdnlqj rxw lqvxudqfh1
Iru lqvwdqfh/ zh pljkw suhsd| pdmru h{shqvhv ri d krolgd| deurdg lq rughu wr dyrlg
h{fkdqjh udwh ulvn1 Olnhzlvh/ lpsruwhuv ri jrrgv pljkw hqjdjh lq iruzdug frqwudfwv
wr surwhfw wkhpvhoyhv iurp h{fkdqjh udwh ulvn1 Zh pd| dovr zlvk wr dffhsw vrph
xqfhuwdlqw| lq rughu wr wdnh dgydqwdjh ri wkh udqjh ri srwhqwldo rxwfrphv dydlodeoh/
dv lq sduwlflsdwlqj lq vwrfn pdunhwv1 Jryhuqphqwv pd| frqvlghu wkh lpsolfdwlrqv
ri iruhfdvw xqfhuwdlqw| dqg/ lq sduwlfxodu/ wkh frqvhtxhqfhv ri dqg frvwv wr pdnlqj
iruhfdvw huuruv lq hfrqrplf srolf|> vhh Exuqv +5334, dqg Fr|oh +5334,1

7 Frqfoxvlrqv
Iruhfdvw xqfhuwdlqw| uh hfwv wkh glvshuvlrq ri srvvleoh rxwfrphv uhodwlyh wr wkh iruh0
fdvw ehlqj pdgh1 Qxphurxv phdvxuhv ri iruhfdvw xqfhuwdlqw| duh dydlodeoh/ zlwk wkh
yduldqfh ri wkh iruhfdvw huuruv dqg wkh phdq vtxduh iruhfdvw huuru ehlqj frpprqo|
xvhg lq sudfwlfh1 Wkh hqwluh glvwulexwlrq ri srwhqwldo rxwfrphv pd| eh ri lqwhuhvw/
dqg qrw mxvw d vxppdu| phdvxuh> dqg judskv fdq dlg lq frqyh|lqj wkh surshuwlhv
ri wkdw glvwulexwlrq1 Zkloh wklv sdshu kdv looxvwudwhg wkhvh lvvxhv zlwk vrph vlpsoh
prghov/ wkh lvvxhv wkhpvhoyhv duh jhqhulf wr iruhfdvwlqj> vhh Fohphqwv dqg Khqgu|
+5334,1 Dfwxdo iruhfdvw prghov pd| lqyroyh erwk vwdwlf dqg g|qdplf frpsrqhqwv/
wkh| pd| eh plv0vshflhg/ dqg wkh iruhfdvwv wkhpvhoyhv pd| eh ri vhwv ri yduldeohv
udwkhu wkdq ri lqglylgxdo yduldeohv1
Iruhfdvw xqfhuwdlqw| dulvhv erwk iurp zkdw zh grq*w nqrz wkdw zh grq*w nqrz
dqg iurp zkdw zh gr nqrz wkdw zh grq*w nqrz1 Lq hfrqrphwulf prghov/ iruhfdvw
xqfhuwdlqw| iurp wkh odwwhu fdq eh fdofxodwhg qxphulfdoo|1 Iruhfdvw xqfhuwdlqw| dovr
ghshqgv xsrq wkh yduldeoh ehlqj iruhfdvw/ wkh w|sh ri prgho xvhg iru iruhfdvwlqj/ wkh
hfrqrplf surfhvv dfwxdoo| ghwhuplqlqj wkh yduldeoh ehlqj iruhfdvw/ wkh lqirupdwlrq
dydlodeoh/ dqg wkh iruhfdvw krul}rq1
Iruhfdvw xqfhuwdlqw| dsshduv lqwulqvlf wr wkh zruog lq zklfk zh olyh/ dqg dq dzduh0
qhvv ri wkdw xqfhuwdlqw| khosv lpsuryh rxu xqghuvwdqglqj ri iruhfdvwv wkhpvhoyhv/ dv
zlwk wkh Edqn ri Hqjodqg*v idq fkduwv1 Phdvxuhv ri iruhfdvw xqfhuwdlqw| dovr surylgh

4;
hfrqrplvwv zlwk d zd| ri dvvhvvlqj wkh lpsruwdqfh ri xqprghohg ihdwxuhv ri wkh hfrq0
rp|/ erwk gluhfwo| wkurxjk wkh fdofxodwhg iruhfdvw xqfhuwdlqw|/ dqg lqgluhfwo| wkurxjk
frpsdulvrq ri wkdw fdofxodwhg xqfhuwdlqw| zlwk wkh uhdol}hg glvwulexwlrq ri iruhfdvw
huuruv1

Uhihuhqfhv
Dqguhzv/ G1 Z1 N1 +4<<6, Whvwv iru Sdudphwhu Lqvwdelolw| dqg Vwuxfwxudo Fkdqjh
Zlwk Xqnqrzq Fkdqjh Srlqw/ Hfrqrphwulfd/ 94/ 7/ ;54;891

Eded/ \1/ G1 I1 Khqgu|/ dqg U1 P1 Vwduu +4<<5, Wkh Ghpdqg iru P4 lq wkh X1V1D1/
4<934<;;/ Uhylhz ri Hfrqrplf Vwxglhv/ 8</ 4/ 58941

Edqn ri Hqjodqg +5333, Lq dwlrq Uhsruw= Qryhpehu 5333/ Edqn ri Hqjodqg/ Orqgrq1

Eduuhoo/ U1 +5334, Iruhfdvwlqj wkh Zruog Hfrqrp| lq dq Xqfhuwdlq Hqylurqphqw/
Fkdswhu < lq G1 I1 Khqgu| dqg Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf
Iruhfdvwv/ PLW Suhvv/ Fdpeulgjh/ Pdvvdfkxvhwwv/ iruwkfrplqj1

Er{/ J1 H1 S1/ dqg J1 P1 Mhqnlqv +4<:3, Wlph Vhulhv Dqdo|vlv= Iruhfdvwlqj dqg
Frqwuro/ Kroghq0Gd|/ Vdq Iudqflvfr1

Exuqv/ W1 +5334, Wkh Frvwv ri Iruhfdvwlqj Huuruv/ Fkdswhu 43 lq G1 I1 Khqgu| dqg
Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ PLW Suhvv/ Fdpeulgjh/
Pdvvdfkxvhwwv/ iruwkfrplqj1

Fdpsrv/ M1 +4<<5, Frqghqfh Lqwhuydov iru Olqhdu Frpelqdwlrqv ri Iruhfdvwv iurp
G|qdplf Hfrqrphwulf Prghov/ Mrxuqdo ri Srolf| Prgholqj/ 47/ 7/ 8688931

Fkrqj/ \1 \1/ dqg G1 I1 Khqgu| +4<;9, Hfrqrphwulf Hydoxdwlrq ri Olqhdu Pdfur0
hfrqrplf Prghov/ Uhylhz ri Hfrqrplf Vwxglhv/ 86/ 7/ 9:49<31

Fkrz/ J1 F1 +4<93, Whvwv ri Htxdolw| Ehwzhhq Vhwv ri Frh!flhqwv lq Wzr Olqhdu
Uhjuhvvlrqv/ Hfrqrphwulfd/ 5;/ 6/ 8<49381

Fohphqwv/ P1 S1/ dqg G1 I1 Khqgu| +4<<6, Rq wkh Olplwdwlrqv ri Frpsdulqj Phdq
Vtxduh Iruhfdvw Huuruv/ Mrxuqdo ri Iruhfdvwlqj/ 45/ ;/ 94:96: +zlwk glvfxvvlrq
dqg uhso|,1

Fohphqwv/ P1 S1/ dqg G1 I1 Khqgu| +4<<;, Iruhfdvwlqj Hfrqrplf Wlph Vhulhv/ Fdp0
eulgjh Xqlyhuvlw| Suhvv/ Fdpeulgjh/ Hqjodqg1

Fohphqwv/ P1 S1/ dqg G1 I1 Khqgu| +4<<<, Iruhfdvwlqj Qrq0vwdwlrqdu| Hfrqrplf Wlph
Vhulhv/ PLW Suhvv/ Fdpeulgjh/ Pdvvdfkxvhwwv1

4<
Fohphqwv/ P1 S1/ dqg G1 I1 Khqgu| +5333, Iruhfdvwlqj zlwk Glhuhqfh0vwdwlrqdu|
dqg Wuhqg0vwdwlrqdu| Prghov/ Hfrqrphwulfv Mrxuqdo/ 7/ 4/ V4V4<1
Fohphqwv/ P1 S1/ dqg G1 I1 Khqgu| +hgv1, +5334, Frpsdqlrq wr Hfrqrplf Iruhfdvwlqj/
Eodfnzhoo Sxeolvkhuv/ R{irug +iruwkfrplqj,1
Fr|oh/ G1 +5334, Pdnlqj Vhqvh ri Sxeolvkhg Hfrqrplf Iruhfdvwv/ Fkdswhu 7 lq
G1 I1 Khqgu| dqg Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ PLW
Suhvv/ Fdpeulgjh/ Pdvvdfkxvhwwv/ iruwkfrplqj1
Grruqln/ M1 D1/ dqg G1 I1 Khqgu| +4<<9, SfJlyh Surihvvlrqdo <13 iru Zlqgrzv/ Lq0
whuqdwlrqdo Wkrpvrq Exvlqhvv Suhvv/ Orqgrq1
Hqjoh/ U1 I1/ dqg G1 I1 Khqgu| +4<<6, Whvwlqj Vxshu H{rjhqhlw| dqg Lqyduldqfh lq
Uhjuhvvlrq Prghov/ Mrxuqdo ri Hfrqrphwulfv/ 89/ 425/ 44<46<1
Hulfvvrq/ Q1 U1 +4<<5, Sdudphwhu Frqvwdqf|/ Phdq Vtxduh Iruhfdvw Huuruv/ dqg
Phdvxulqj Iruhfdvw Shuirupdqfh= Dq H{srvlwlrq/ H{whqvlrqv/ dqg Looxvwudwlrq/
Mrxuqdo ri Srolf| Prgholqj/ 47/ 7/ 7987<81
Hulfvvrq/ Q1 U1/ G1 I1 Khqgu|/ dqg N1 P1 Suhvwzlfk +4<<;, Wkh Ghpdqg iru Eurdg
Prqh| lq wkh Xqlwhg Nlqjgrp/ 4;:;4<<6/ Vfdqglqdyldq Mrxuqdo ri Hfrqrplfv/
433/ 4/ 5;<657 +zlwk glvfxvvlrq,1
Hulfvvrq/ Q1 U1/ dqg M1 V1 Lurqv +4<<8, Wkh Oxfdv Fulwltxh lq Sudfwlfh= Wkhru|
Zlwkrxw Phdvxuhphqw/ Fkdswhu ; lq N1 G1 Krryhu +hg1, Pdfurhfrqrphwulfv=
Ghyhorsphqwv/ Whqvlrqv/ dqg Survshfwv/ Noxzhu Dfdghplf Sxeolvkhuv/ Ervwrq/
Pdvvdfkxvhwwv/ 596645 +zlwk glvfxvvlrq,1
Hulfvvrq/ Q1 U1/ dqg M1 Pdutxh} +4<<6, Hqfrpsdvvlqj wkh Iruhfdvwv ri X1V1 Wudgh
Edodqfh Prghov/ Uhylhz ri Hfrqrplfv dqg Vwdwlvwlfv/ :8/ 4/ 4<641
Hulfvvrq/ Q1 U1/ dqg M1 Pdutxh} +4<<;, D Iudphzrun iru Hfrqrplf Iruhfdvwlqj/
Hfrqrphwulfv Mrxuqdo/ 4/ 4/ F55;F5991
Jrogihog/ V1 P1 +4<:6, Wkh Ghpdqg iru Prqh| Uhylvlwhg/ Eurrnlqjv Sdshuv rq
Hfrqrplf Dfwlylw|/ 4<:6/ 6/ 8::96; +zlwk glvfxvvlrq,1
Jrogihog/ V1 P1 +4<:9, Wkh Fdvh ri wkh Plvvlqj Prqh|/ Eurrnlqjv Sdshuv rq Hfr0
qrplf Dfwlylw|/ 4<:9/ 6/ 9;6:63 +zlwk glvfxvvlrq,1
Judqjhu/ F1 Z1 M1 +5334, Hydoxdwlrq ri Iruhfdvwv/ Fkdswhu 9 lq G1 I1 Khqgu| dqg
Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ PLW Suhvv/ Fdpeulgjh/
Pdvvdfkxvhwwv/ iruwkfrplqj1
Kdqvhq/ E1 H1 +4<<5d, Whvwlqj iru Sdudphwhu Lqvwdelolw| lq Olqhdu Prghov/ Mrxuqdo
ri Srolf| Prgholqj/ 47/ 7/ 84:8661
Kdqvhq/ E1 H1 +4<<5e, Whvwv iru Sdudphwhu Lqvwdelolw| lq Uhjuhvvlrqv zlwk L+4, Sur0
fhvvhv/ Mrxuqdo ri Exvlqhvv dqg Hfrqrplf Vwdwlvwlfv/ 43/ 6/ 6546681

53
Kdwfk/ Q1 +5334, Prgholqj dqg Iruhfdvwlqj dw wkh Edqn ri Hqjodqg/ Fkdswhu ; lq
G1 I1 Khqgu| dqg Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ PLW
Suhvv/ Fdpeulgjh/ Pdvvdfkxvhwwv/ iruwkfrplqj1

Khqgu|/ G1 I1 +4<;:, Hfrqrphwulf Phwkrgrorj|= D Shuvrqdo Shuvshfwlyh/ Fkds0
whu 43 lq W1 I1 Ehzoh| +hg1, Dgydqfhv lq Hfrqrphwulfv= Iliwk Zruog Frqjuhvv/
Yroxph 5/ Fdpeulgjh Xqlyhuvlw| Suhvv/ Fdpeulgjh/ Hqjodqg/ 5<7;1

Khqgu|/ G1 I1 +4<;;, Wkh Hqfrpsdvvlqj Lpsolfdwlrqv ri Ihhgedfn yhuvxv Ihhgiru0
zdug Phfkdqlvpv lq Hfrqrphwulfv/ R{irug Hfrqrplf Sdshuv/ 73/ 4/ 46547<1

Khqgu|/ G1 I1 +4<<8, G|qdplf Hfrqrphwulfv/ R{irug Xqlyhuvlw| Suhvv/ R{irug1

Khqgu|/ G1 I1 +5334, Krz Hfrqrplvwv Iruhfdvw/ Fkdswhu 5 lq G1 I1 Khqgu| dqg
Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ PLW Suhvv/ Fdpeulgjh/
Pdvvdfkxvhwwv/ iruwkfrplqj1

Khqgu|/ G1 I1/ D1 Sdjdq/ dqg M1 G1 Vdujdq +4<;7, G|qdplf Vshflfdwlrq/ Fkds0
whu 4; lq ]1 Julolfkhv dqg P1 G1 Lqwuloljdwru +hgv1, Kdqgerrn ri Hfrqrphwulfv/
Yroxph 5/ Qruwk0Kroodqg/ Dpvwhugdp/ 435644331

Krryhu/ N1 G1/ dqg V1 M1 Shuh} +4<<<, Gdwd Plqlqj Uhfrqvlghuhg= Hqfrpsdvvlqj dqg
wkh Jhqhudo0wr0vshflf Dssurdfk wr Vshflfdwlrq Vhdufk/ Hfrqrphwulfv Mrxuqdo/
5/ 5/ 49:4<4 +zlwk glvfxvvlrq,1

Mxgg/ M1 S1/ dqg M1 O1 Vfdgglqj +4<;5, Wkh Vhdufk iru d Vwdeoh Prqh| Ghpdqg
Ixqfwlrq= D Vxuyh| ri wkh Srvw04<:6 Olwhudwxuh/ Mrxuqdo ri Hfrqrplf Olwhudwxuh/
53/ 6/ <<643561

Nuro}lj/ K10P1/ dqg G1 I1 Khqgu| +5334, Frpsxwhu Dxwrpdwlrq ri Jhqhudo0wr0
vshflf Prgho Vhohfwlrq Surfhgxuhv/ Mrxuqdo ri Hfrqrplf G|qdplfv dqg Frqwuro/
58/ 9:/ ;64;991

Oxfdv/ Mu1/ U1 H1 +4<:9, Hfrqrphwulf Srolf| Hydoxdwlrq= D Fulwltxh/ lq N1 Euxqqhu
dqg D1 K1 Phow}hu +hgv1, Wkh Skloolsv Fxuyh dqg Oderu Pdunhwv/ Qruwk0Kroodqg/
Dpvwhugdp/ Fduqhjlh0Urfkhvwhu Frqihuhqfh Vhulhv rq Sxeolf Srolf|/ Yroxph 4/
Mrxuqdo ri Prqhwdu| Hfrqrplfv/ Vxssohphqw/ 4<79 +zlwk glvfxvvlrq,1

Pdutxh}/ M1/ dqg Q1 U1 Hulfvvrq +4<<6, Hydoxdwlqj Iruhfdvwv ri wkh X1V1 Wudgh Edo0
dqfh/ Fkdswhu 47 lq U1 F1 Eu|dqw/ S1 Krrshu/ dqg F1 O1 Pdqq +hgv1, Hydoxdwlqj
Srolf| Uhjlphv= Qhz Uhvhdufk lq Hpslulfdo Pdfurhfrqrplfv/ Eurrnlqjv Lqvwlwx0
wlrq/ Zdvklqjwrq/ G1F1/ 9:4:651

Rveruq/ G1 U1/ P1 Vhqvlhu/ dqg S1 Z1 Vlpsvrq +5334, Iruhfdvwlqj dqg wkh XN Exvl0
qhvv F|foh/ Fkdswhu : lq G1 I1 Khqgu| dqg Q1 U1 Hulfvvrq +hgv1, Xqghuvwdqglqj
Hfrqrplf Iruhfdvwv/ PLW Suhvv/ Fdpeulgjh/ Pdvvdfkxvhwwv/ iruwkfrplqj1

Vlqjhu/ P1 +4<<:, Wkrxjkwv ri d Qrqploohqduldq/ Exoohwlq ri wkh Dphulfdq Dfdghp|
ri Duwv dqg Vflhqfhv/ 84/ 5/ 69841

54
Wxuqhu/ S1 +5334, Hfrqrplf Prgholqj iru Ixq dqg Surw= Wkh Uroh ri Hfrqrplf
Prghov lq Jhqhudwlqj Hfrqrplf Iruhfdvwv/ Fkdswhu 6 lq G1 I1 Khqgu| dqg Q1 U1
Hulfvvrq +hgv1, Xqghuvwdqglqj Hfrqrplf Iruhfdvwv/ PLW Suhvv/ Fdpeulgjh/ Pdv0
vdfkxvhwwv/ iruwkfrplqj1

Zdoolv/ N1 I1 +4<<<d, Dv|pphwulf Ghqvlw| Iruhfdvwv ri Lq dwlrq dqg wkh Edqn ri
Hqjodqg*v Idq Fkduw/ Qdwlrqdo Lqvwlwxwh Hfrqrplf Uhylhz/ 49:/ Mdqxdu|/ 439
4451

Zdoolv/ N1 I1 +4<<<e, Pdfurhfrqrphwulf Prghoolqj/ plphr/ Ghsduwphqw ri Hfr0
qrplfv/ Xqlyhuvlw| ri Zduzlfn/ Fryhqwu|/ Hqjodqg/ Dxjxvw +suhvhqwhg dw d frq0
ihuhqfh dw wkh Xqlyhuvlw| ri Lfhodqg/ Uh|nmdyln/ Lfhodqg/ Pd| 5;5</ 4<<<,1

Zhvw/ N1 G1 +4<<9, Dv|pswrwlf Lqihuhqfh Derxw Suhglfwlyh Delolw|/ Hfrqrphwulfd/
97/ 8/ 439:43;71

55