R. Počs, V. Ozoliņa Riga Technical University. 21 st Inforum World Conference at Listvyanka, 2013

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1 R. Počs, V. Ozoliņa Riga Technical University 21 st Inforum World Conference at Listvyanka, 2013

2 Macroeconomic Modelling in Latvia Banks Regular use, but mostly confidential Ministries Ministry of Economics and Ministry of Finance, regular use Universities and other organisations Mostly analysis of different aspects of economy

3 Analysis of Macroeconomic Models Model application options Purpose and tasks Application direction Application stage Subject or user Regularity of model use Forecasting horizon Economic analysis Forecasting Scenario analysis Evaluation of influence of shocks Counterfactual analysis Risk analysis Other tasks Managerial decisionmaking Elaboration of fiscal, monetary, energy, social policy Planning in government institutions Research Teaching Commercial use Other application directions Use for a particular aim (Principal models) Use in a system of models (Assistant models) Dual use User relation to model Model users are model builders Model users are not model builders Subject s institutional affiliation State administration Central banks International organizations Scientific organizations Commercial organisations Other users Regular use Use upon necessity Rare use Short-term Mediumterm Long-term

4 Latvia s Macro-Econometric Model Latest developments: Updated database Updated model Portable Dyme and G7

5 Monograph Contents 1. OVERVIEW OF MACROECONOMIC MODELS IN THE WORLD 1.1. General Characterization of the Models 1.2. Theoretical Basis of the Models 1.3. Application Options of the Models 1.4. Model Structure 1.5. Informative and Software Maintenance 2. THE STRUCTURE OF THE LATVIA S MACRO-ECONOMETRIC MODEL 2.1. Theoretical Justification of the Model 2.2. General Structure of the Model 2.3. GDP Use and Income Section 2.4. Supply of Goods and Services and Production Factors 2.5. Prices and Wages 2.6. Foreign Trade and Balance of Payments 2.7. Employment and Demographic Indicators 2.8. Fiscal Sector 2.9. Energy Sector 3. APPLICATION OF MACROECONOMIC MODELS IN LATVIA 3.1. Modelling in Latvia 3.2. Development Scenarios of Latvian Economy 3.3. Forecasts of Macroeconomic Indicators

6 Future Prospects Modelling of Logistic Systems and Transit Product- to-product Tables for Products of Forestry and Wood

7 Latvia s Macro-Econometric Model Latest developments: Updated database From 15 industries to 10 New data on resident population Population Census 2011 G7 at last

8 Latvia s Macro-Econometric Model GDP use and income section, supply of goods and services and production factors, prices and wages, foreign trade and balance of payments, fiscal sector, employment and demographic indicators, energy sector

9 Capital investments Foreign direct investments in Latvia Stock ratio Real changes in stock Real gross capital formation Real export Real investments Investment deflator Investment Export deflator Stock ratio Changes in stocks Gross capital formation Export of goods Export Export of services Real import Other expenditures of government budget Import deflator Other government final consumption expenditures Import Coef. of other government consumption expenditures Total real consumption Government consumption Total consumption Real government consumption Expenditures of government budget for wages Real private consumption Government consumption price index Private consumption Marginal propensity to consume Real disposable income Private consumption price index Tax income Disposable income GDP Real GDP Social benefits Resident population (average) GDP per person - exogenous variables - variables from other sections of the model - endogenous variables

10 Social contributions coefficient Nominal wages Wage coefficient Employers social contributions Number of employees Wages and salaries Compensation of employees Share of employees social contributions Revenues of social insurance contributions Taxes on production and imports Expenditures of government budget for subsidies Subsidies EU subsidies to farmers GDP Profit or loss of enterprises before taxes Gross operating surplus and mixed income Profit share coefficient

11 GDP deflator Import share in public administration Expenditures of government budget on social benefits Real output in public administration Real output in education Expenditures of government budget Import share in education Real private consumption Real government consumption Real consumption Time trend Import share in trade, hotels and restaurants Real output in health and social work Real output in trade, hotels and restaurants Real output in financial intermediation and real estate Import share in health and social work Import share in financial intermediation and real estate Export price index Real output in transport and communications Export of services Import share in transport and communications Real output in other services Total real output Real output in other industries Real output in services

12 Import share in agriculture Total import share Real output in agriculture and fishing Real private consumption Import share in industry Real government consumption Real output in industry Real investments Import share in construction Real changes in inventories Real output in construction Real exports Price index of taxes on products Total real output Real taxes on products Revenues of taxes on products GDP deflator Real GDP Real subsidies on products Growth of real GDP GDP Total value added Subsidies on products Total share of value added in output Total real value added

13 Import share in trade, hotels and restaurants Real output in trade, hotels and restaurants VA share ffi i t Real output in transport and communications Real VA in trade, hotels and restaurants Import share in transport and communications VA share Real VA in transport and communications Real output in financial intermediation and real estate Import share in financial intermediation and real estate VA share coefficient Real VA in financial intermediation and real estate Real output in public administration Import share in public d i i i Import share in education VA share coef. Real output in education VA share coef. Real VA in public administration Real VA in education Import share in health and social k Real output in health and social work VA share coef. Real output in other services Real VA in health and social work Import share in other services VA share coef. Real VA in other services Real imports Real VA in services

14 Real output in agriculture and fishing Import share in agriculture and fishing Real import in agriculture and fishing Real VA in agriculture and fishing VA share coef Real output in industry Import share in industry Real VA in industry Real import in industry VA share coef Real import in industries A-E Real output in construction Import share in construction Real import VA share coef Real VA in construction Real VA in service industries Real value added

15 Real VA in other services Capital investments in other services Investment deflator Price index in other services Real VA in trade, hotels and restaurants Capital investments in trade, hotels and restaurants Price index in trade, hotels and restaurants Long-term interest rate Real VA in transport and communications Time trend Capital investments in transport and i i Capital investments in financial intermediation and real estate Real VA in financial intermediation an dreal estat Real VA in public administration Capital investments in public administration Real VA in education Capital investments in education Real VA in health and social work Capital investments in health and social work Capital investments in services

16 Real VA in agriculture and fishing Capital investments in agriculture and fishing Investment deflator Price index in agriculture and fishing Time trend Capital investments in industry Real VA in industry Capital investments in construction Capital investments in service industries Share of capital investments in service Total capital investments Growth of capital investments

17 Capital investments in particular industry Number of employees in particular industry Investment costs in particular industry Labour costs in particular industry Investment deflator Real output in particular industry Price index in construction Nominal wages Price index growth Investment costs Price index in agriculture and fishing Labour costs Price index growth Price index industry Time trend Price index in trade, hotels and restaurants Investment costs Price index growth Price index growth Price index in transport, storage and communications Revenues of taxes on products Total value added Price index growth Tax rate on products Investment costs Labour costs Price index in financial intermediation and real Labour costs Price index in public administration Price index growth Labour costs Price index in education Labour costs Price index growth Investment costs Labour costs Price index in health and social work Price index in other services Price index growth Price index growth

18 Deflator growth Investment deflator GDP Real GDP GDP deflator GDP deflator growth Total compensation of employees Number of employees Time trend Deflator growth Import deflator Export deflator Private consumption deflator Deflator growth Tax deflator Real output Productivity Nominal wages Average monthly wage Deflator growth

19 Real GDP growth in EU-15 countries GDP deflator in EU-15 countries GDP deflator growth in EU- 15 countries Real GDP in EU-15 countries Export of goods to EU-15 countries Competitiveness indicator GDP deflator Time trend Russian real GDP growth Russian GDP deflator growth Real GDP of Russia Russian GDP deflator Export of goods to CIS countries Competitiveness indicator Export deflator Exchange rate of LVL to RUB Real GDP growth of Estonia and Lithuania Lithuanian GDP deflator growth Real GDP of Estonia and Lithuania Lithuanian GDP deflator Export of goods to other countries Competitiveness indicator Import of industries A-E Export of goods Net foreign trade of goods Import of goods Import deflator Correction coefficient

20 Export of services Export of transportation Consumption price index Export of travel Net Export of Services Export deflator Real import in industry I Coef. of import of transportation Import of i Import deflator Import of services Real GDP in EU-15 countries Export of other services Real export and import of goods Real private consumption Import of travel Time trend Export of goods Export of goods and services Net export of goods and services Import of goods Import of other services Import of goods and services Net export of goods and services as % of GDP GDP

21 Other transfers EU subsidies to farmers EU funds Received transfers Net government transfers Net export of goods and services Net export of goods and services in BoP Correction coef. GDP Current account as % of GDP Current account balance Paid transfers Other transfers Coef. Net transfers Net income Payments to EU budget GDP Net transfers of other Coef. Latvian direct investment abroad Coef. Government bonds and notes Net other government Financial derivatives Growth rate Foreign direct investment in Latvia Net direct investment Other portfolio investment Net portfolio investment Net other investment Financial account balance Capital and financial account balance Capital transfers of other sectors Government capital transfers EU funds Other capital transfers Investment of other sectors Net capital transfers Net non-produced nonfinancial assets Reserve assets Capital account balance Net errors and omissions

22 Real VA in trade, hotels and restaurants Productivity in trade, hotels and Number of employees in trade, hotels and restaurants Time trend Real VA in transport and communications Productivity in transport and i i Number of employees in transport and i i Nominal wages Price index in transport and communications Real VA growth in financial intermediation and real Real VA in financial intermediation and real Productivity in financial intermediation and real estate Number of employees in financial intermediation and real estate Elasticity coef. to VA Growth of number of employees Real VA in public administration Number of employees in public administration Productivity in public administration Growth of number of employees Real VA in education Productivity in education Number of employees in education Growth of number of employees Real VA in health Productivity in health Number of employees in health and social work Real VA growth in other services Real VA in other services Productivity in other services Number of employees in other services Elasticity coef. to VA Number of employees in services

23 Real VA in agriculture and fishing Productivity in agriculture and fishing Number of employees in agriculture.and fishing Time trend Real VA in industry Number of employees in industry Productivity in industry Real VA growth in construction Real VA in construction Productivity in construction Number of employees in construction Elasticity coef. to VA Number of employees in services Population of age Total real value added Employment rate Total productivity Total number of employees Growth of number of employees Economically active population Total number of unemployed Total unemployment rate

24 Natural increase of population Coef. of natural increase of population Time trend Net migration Total increase of population Number of population at the end of the Growth of average number of population Average number of population Population at age 0-14 years Growth of economically active population Share of economically active population Share of population at age 0-14 years Economically active population Share of population at age years Population at age 15 years and older Share of retirees Number of retirees Population at age years Share of population at age 65 years and ld Population at age 65 years and older

25 Private consumption Revenues of excise duties Time trend Levies on imported agricultural products VAT rate Payment share coef. Payment share coef. VAT revenues Payments in the EU budget Payments in the EU budget Tax payments in the EU budget Import Revenues of customs duties GDP Coef. of tax rate on production Capital tax rate coef. Profit Untaxed minimum Personal income tax rate Nominal wages Revenues of other taxes on products Revenues of other taxes on d i Revenues of capital taxes Revenues of enterprise income tax Share of social contributions paid by employees Revenues of personal income tax Revenues of taxes on products Revenues of taxes on production and imports Revenues of taxes on income, wealth etc Number of employees Revenues of social contributions Coef. of other revenues Social contributions rate Tax revenues Other revenues Non-tax revenues Government budget revenues GDP Transfers from abroad Capital transfers from abroad Tax burden

26 Interest rate coef. Interest payments Gross fixed capital formation Government capital share coef. Gross capital formation Growth rate of compensation of employees Time trend Average monthly gross wage in public sector Number of employees in public Number of pensioners Total number of unemployed Average gross wages EU subsidies to farmers Capital transfers of the EU funds Transfers received from the EU funds Subsidy share coef. Compensation of employees Revenues of social contributions Balance of social budget Social benefits Consumption price index EU funds Payments abroad Subsidies Other expenditures Government budget revenues Government budget expenditures Government debt residual GDP Budget deficit or surplus Government Government budget deficit or surplus as % of GDP Government debt as % of GDP

27 Time trend Real output in agriculture and fishing Real output in industry Electricity consumption in agriculture Electricity consumption in industry Total real output Average number of trolleybusses and tramcars Real output in construction Real output in other industries Electricity consumption in construction Electricity consumption in other industries Electricity consumption in road transport Electricity consumption in rail transport Electricity consumption in transport Number of passengers in rail transport Oil and oil products transport by pipelines Time trend Electricity consumption in pipeline transport Electricity consumption in households Electricity losses Number of employees Total electricity consumption Final consumption of electricity

28 Model in Portable Dyme Database Not yet German efficiency hist vs. calc Too many re-runs

29 Model in Portable Dyme Regressions Temporary variables vs. additional variables in data space problems with different limits (2011/2012) Does the sequence matters in alleqn.reg? How about coefficients?

30 Latvia s Macro-Econometric Model Export of Goods to Other Countries SEE = 0.07 RSQ = RHO = 0.19 Obser = 18 from SEE+1 = 0.07 RBSQ = DW = 1.62 DoFree = 14 to MAPE = 0.87 Variable name Reg-Coef Mexval Elas NorRes Mean Beta 0 LEX_GOODS_OTH intercept D_

31 Model in Portable Dyme Model Many things to forget Double information/missing information

32 Economic Development of Latvia

33 Economic Development of Latvia

34 Economic Development of Latvia

35 Economic Development of Latvia

36 Economic Development of Latvia

37 Economic Development of Latvia

38 Economic Development of Latvia

39 Results: Real GDP

40 Results: Real Capital Investments

41 Results: Nominal Wages

42 Results: Current Account, % of GDP

43 Results: Number of Employees

44 Results: Total Unemployment Rate

45 Results: Population 2250 thsd LZA EI Inert Scenario with Migration, 2012 LZA EI Active Scenario without Migration, 2012 IMF, World Economic Outlook Database, April 2013 UN Population Division, High Fertility Scenario, 2012 UN Population Division, Low Fertility Scenario, 2012 V. Ozolina, R. Pocs,

46 Results: Government Revenues

47 Results: Government Debt, % of GDP

48 Results: Electricity Consumption GWh Daugava's HPPs Other producers Riga's CHPs Electricity def icit (Base scenario)

Forecasting Tax Revenues in Latvia: Analysis and Models. Velga Ozolina, Astra Auzina-Emsina, Remigijs Pocs Riga Technical University, Latvia

Forecasting Tax Revenues in Latvia: Analysis and Models Velga Ozolina, Astra Auzina-Emsina, Remigijs Pocs Riga Technical University, Latvia CSB data Data Analysis Ministry of Finance data State Revenue