Macroeconomic Modelling and Forecasting

Capabilities: NiGEM

Dr Garry Young
Director of Macroeconomic Modelling and Forecasting, g.young@niesr.ac.uk

National Institute of Economic and Social Research

Key benefits of global macroeconomic models for
forecasting and what-if exercises:
1. Provide a framework for understanding how economies
work and interact.
2. Are a tool for thinking about possible identifiable risks,
policy responses and wider consequences.
3. Can have multiple applications, so don’t need to reinvent
wheel each time.
4. Incorporate key magnitudes and impose consistency -
make sure things add up.
5. Improve over time in reaction to new ideas and events.

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 NiGEM

National Institute Global

Econometric Model

National Institute of Economic and Social Research

 What is NiGEM?
• A transparent, peer reviewed global econometric
model that has evolved over 30 years of regular use

• Over 60 countries and regions modelled

– Detailed country-level models

• Provides access to forecasts, scenarios and

stochastic output for over 5000 macro variables
– Allows complete replicability of our in-house processes

• Historical and forecast data updated quarterly

• The scenario suite allows users to run simulations for

economic shocks:
– Common shocks include, fiscal, monetary policies
commodity prices, labour market
– Tariffs, trade and investment
– Financial market modelling of risk premia

National Institute of Economic and Social Research

What type of macroeconomic model is NiGEM?

NiGEM is a global macro-econometric policy model:

• Policy models are ‘aimed at analysing actual macroeconomic policy
issues. Models in this class should fit the main characteristics of the
data, including dynamics, and allow for policy analysis and
counterfactuals. They should be used to think, for example, about the
quantitative effects of a slowdown in China on the United States, or
the effects of a US fiscal expansion on emerging markets.’ (Blanchard,
Oxford Review of Economic Policy 2018)
• May 2018 issue of National Institute Economic Review includes
overview of NiGEM plus articles on use by OECD, Deutsche
Bundesbank, Banque de France, Rabobank, Central Bank of Ireland.

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 NiGEM based on modern macroeconomics
• Individual country models have following features:
• Sticky prices
• Forward-looking consumption and investment
• Taylor rule and other options for monetary policy
• Long-run fiscal solvency
• Individual countries related by trade relations and asset
pricing relationships (UIP etc)

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 NiGEM long-run properties

In the long run output is determined by potential reflecting:

• working age population and equilibrium unemployment

and participation
• the capital stock, influenced by equilibrium user cost of
capital
• exogenous technological capability which is assumed in
each country to catch up gradually to that in highest
productivity economy

National Institute of Economic and Social Research

 Benefits of using NiGEM
• Transparency
– All data, assumptions and judgments
used in our published forecasts are
included as standard
• Rigour
– NiGEM has been peer-reviewed by
users, academics and journal editors for
over 30 years.
– Internationally-recognised
• Flexibility
– Easily incorporate your own
assumptions and judgments, change
policy regimes and other elements
• Usability
– ‘click and play’ options or more
advanced manipulation
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• Flexible to your requirements
– Flexibility to modify existing model or
create your own countries and regions
• Easy to install
– Fully compatible with Microsoft
windows
• Support
– Full technical and economic support
provided to all users
• Training
– Monthly training workshops available
free to subscribers
– NiGEM user group meetings
 Some of the unique model capabilities

• Expectation formation is flexible, Distributions around forecasts and simulations

adaptive or rational can be chosen based on draws from historic shocks
for the following:
CPI inflation (per cent per annum)
– Long rates and long real rates, Exchange
rates, Consumption, Financial market,
Wages, Housing market

• Flexible monetary policy and fiscal

policy rules
– Taylor Rule, 2-Pillar rule, Nominal GDP
targeting, Orphanides rule
– Fiscal solvency can be manipulated

• Can use in single country mode

• Built-in stochastic forecasting tool

National Institute of Economic and Social Research

 Macroeconomists at NIESR
• Professor Jagjit S. Chadha, Director of NIESR
• Professor Roger Farmer, Research Director
• Dr Garry Young, Director of Macroeconomic Modelling and Forecasting
• Dr Angus Armstrong, Director of Rebuilding Macroeconomics
• Rebecca Riley, Director of the Economics Statistics Centre of Excellence
• Amit Kara, Head of UK Economics
• Barry Naisbitt, Head of Global Macroeconomics
• Dr Ian Hurst, Associate Research Director for Model Development
• 30 Research Staff and some 25 Fellows.

Established in 1938 to build a better society through research and analysis.

Research topics from household and firm-level behaviour to monetary and

fiscal policy, as well as macroeconomic modelling and financial flows

Econometric development of nowcasting and regional data

National Institute of Economic and Social Research

 Significant model oversight

Model Oversight Committee Institute Model Committee

• Prof. Rafaella Giacometti, University • Prof Jagjit Chadha
College London • Prof Roger Farmer
• Prof. Denise Osborn, University of • Dr Garry Young
Manchester • Dr Ian Hurst
• Prof. Hashem Pesaran, University of
Southern California and University of
Cambridge
• Prof. Simon Wren-Lewis, University of Institute Macroeconomic
Oxford Partnerships
• Prof. Ron Smith, Birkbeck College, London • University of Warwick
• Centre for Macroeconomics
• Rebuilding Macroeconomics
Client User Groups • ESCoE
• Challenge from global client base • Money, Macro, Finance Research Group
• Annual user group meeting • LLAKES
• Regular Training Sessions • CVER

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 NiGEM clients include:

National Institute of Economic and Social Research

 Bespoke front-end software

National Institute of Economic and Social Research

 Menu driven functionalities

National Institute of Economic and Social Research

 Bespoke viewing platform
Forecast suite output Simulation suite output

National Institute of Economic and Social Research

 Training
• Nine training workshops per year held
at NIESR in Westminster
– Beginner, intermediate or advanced
options

• Intermediate and advanced courses are

all bespoke

• Online training content available at

https://nimodel.niesr.ac.uk/

• Direct contact with modellers on the Executive Education Available

NiGEM team with University of Warwick:

https://www2.warwick.ac.uk/about/london/s
• Developing online video tutorials tudy/executive-
education/programmes/forecastingwithniesr/

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 NiGEM Applications

National Institute of Economic and Social Research

 NiGEM Applications

Integrate your
own models
or amend
parameters

Stochastic Historical and

Simulations Forecast
(IFRS9) Databases
NiGEM

Scenario
Analysis Country
(Stress Forecasting
Testing)

National Institute of Economic and Social Research

Examples of recent scenario work using NiGEM
• NIESR Scenarios have included The impact of potential monetary policy
– Modelling Brexit scenarios options in an MPC response to the 2016-18
– Optimal regulation of bank capital and liquidity downturn
(for FSA)
– Chinese ‘hard landing’ scenarios
• Studies published by our external user
group
– Impact of Britain leaving EU (HM Treasury,
OECD, Rabobank, Central Bank of Ireland)
– Impact of structural reforms in the G20 (Banque
de France)
– Impact of US monetary policy tightening (OECD)
– Impact on Europe from a negative shock to US
(ECB, Bundesbank)
– Impact of changing financial regulation on UK
economy (BoE)
– Effect of fiscal stimulus on German economy
(German Finance Ministry)
– Impact of protectionism (BoE)

National Institute of Economic and Social Research

 Impact of global escalation of protectionism
Impact of tariffs on GDP in the third year (2020)
0
Percentage difference from base

-1

-2

-3

-4

-5

-6
US UK EA World
10% increase to 75 basis points Expectations of Expectations of continued
non-commodity export increase in term continued tariffs tariffs in 2022 and all
prices in 2018-19 premia in 2021 subsequent years

Source: NiGEM Simulation

National Institute of Economic and Social Research

 Stress Testing
• Use the model that the PRA uses to
develop the stress testing scenarios

• So NiGEM allows a consistent

replication of their key variables

• It provides stochastic outputs to the

stress scenarios that give additional
scenario reporting capabilities

• Well recognised by regulators not only

in the UK but globally.

National Institute of Economic and Social Research

 What do you get with a subscription?
• Quarterly update of model and
software
– Includes wizards to create host of
scenarios with ease
• NIESR’s quarterly forecast baseline
– Currently out to 2044Q4
• Historical time series (back to
1961Q1)
• Stochastic simulations package
– Creates confidence bands around
outputs
• Regular training
– Two-day workshop, run nine times per
year at NIESR
– All content posted online to allow self-
study
• Support from our team of NiGEM
specialists
• NiGEM Observations
– Timely research notes by the NiGEM team
• Quarterly National Institute Economic
Review
– Details of our forecast and macroeconomic
research papers

National Institute of Economic and Social Research

 Country and Variable Coverage
Europe
Austria (169 variables)
Belgium (167 variables)
Bulgaria (81 variables)
Czechia (139 variables)
Denmark (167 variables)
Developing Europe (57 variables)
EMU (54 variables)
Estonia (77 variables)
Finland (166 variables)
France (171 variables)
Germany (195 variables)
Greece (164 variables)
Hungary (139 variables)
Ireland (168 variables)
Italy (194 variables)
Latvia (77 variables)
Lithuania (83 variables)
Netherlands (165 variables)
Norway (69 variables)
Poland (139 variables)
Portugal (161 variables)
Romania (81 variables)
Russia (67 variables)
Slovakian Republic (83 variables)
Slovenia (80 variables)
Spain (168 variables)
Sweden (169 variables)
Switzerland (69 variables)
Turkey (65 variables)
U.K. (272 variables)
UK-sector (19 variables)
Americas
Argentina (70 variables)
Brazil (67 variables)
Canada (165 variables)
Chile (70 variables)
Mexico (70 variables)
U.S.A. (187 variables)
Africa/Middle East
Africa (57 variables)
South Africa (67 variables)
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Asia/Australasia
Australia (155 variables)
China (121 variables)
Hong Kong (66 variables)
India (67 variables)
Indonesia (65 variables)
Japan (165 variables)
Korea (70 variables)
New Zealand (67 variables)
Singapore (65 variables)
Taiwain (66 variables)
Vietnam (93 variables)
Groups & Regions
CIS (59 variables)
East Asia (58 variables)
Euro Area (51 variables)
Latin America (57 variables)
Middle East (57 variables)
Nafta (2 variables)
New Member States (4 variables)
OECD Europe (4 variables)
OECD (8 variables)
Old EU-15 (5 variables)
Government accounts
Expenditure + GDP
Corporation tax rate;
Business investment; Corporation tax receipts;
Domestic demand; Direct Taxes;
Exports of goods and services; Direct tax rate;
GDP; Federal indirect taxes;
GNP; Federal interest payments;
Govt consumption; General govt budget surplus;
Govt investment; General govt expenditure as % of GDP;
Housing investment; Goods and Services;
Imports of goods and services; Govt Debt Stock Gross;
Industrial production; Govt Debt Stock Market Value;
Net Trade; Govt Interest Payments;
Nominal GDP; Govt balance;
Nominal GNP; Govt debt as per cent of GDP;
Nominal consumption; Govt debt ratio;
Nominal investment; Govt tax revenue as % of GDP;
Private Sector Investment; Indirect tax rate;
Private consumption;
Indirect tax revenue;
Stock building as a % of GDP;
Miscellaneous Expenditure;
Stock building;
Miscellaneous Taxes;
Total final expenditure; Other general govt expenditure;
Whole economy GVA; Other income tax revenue;
Personal social security contributions;
Profits tax revenue;
Deflators + Prices Public Sector Net Borrowing (% of GDP);
Average expected inflation (10 years); Public Sector Net Borrowing;
CPI administered; Public Sector Net Debt (% of GDP);
CPI not administered; Stock of govt debt pers sector;
Consumer expenditure deflator Target; Surplus on Current Budget (% of GDP);
Consumer expenditure deflator; Surplus on Current Budget;
Consumer price index; Taxes on income;
Deflator exports of goods and services; Total Tax Revenue;
Deflator imports of goods and services; Total government expenditure;
Export price of non-commodities; Total govt expenditure;
Exports deflator; Transfers;
GDP deflator at factor costs; Wage tax revenue;
GDP deflator;
Harm consumer price index; Households
Harm consumer price index; Average earnings;
Harmonised inflation; Gross disposable income;
Imports deflator; Gross liabilities personal sector;
Inflation Expectations target; House Prices;
Inflation expectations; Human wealth, Household;
Inflation rate (CED); Other personal income;
Investment deflator; Personal Income;
Price of commodity exports; Real personal disposal income;
Share of administered prices; Saving Ratio;
Total CPI; Stock Market Capitalisation;
Unit Total Costs; Value of personal sector housing stock
Wholesale prices;