| US Forecast: April 30, 1998 |
| Forecast Period 1998:2--2003:4 (23 quarters) Data The forecast is based on the national income and product accounts (NIPA) data that were released on April 30, 1998. The Latest Version of the US Model For purposes of this forecast the US model has been reestimated through 1998:1. The specification of the model has not been changed from the previous two versions (November 11, 1997 and January 30, 1998). The latest estimates are presented in the "Chapter 5 Tables" at the end of The US Model Workbook. The complete discussion of the November 1, 1996, version of the US model is in Testing Macroeconometric Models on this site. The following is a discussion of the changes that were made between the November 1, 1996, version and the November 11, 1997, version. Changes in the US Model between November 1, 1996, and November 11, 1997
Assumptions Behind the Forecast Included on this site is an analysis of three economic plans that I did on September 4, 1996. The three plans were the latest (at the time) Congressional plan, the Clinton plan, and the Dole plan. The budget agreement that has recently been worked out by the Democrats and Republicans is probably closest to the original Clinton plan, although the spending cuts are not as large as the originally planned cuts. The following table gives for the key government policy variables in the model 1) the growth rates used for the current forecast, 2) the growth rates I used in analyzing the original Clinton plan, and 3) the actual growth rates between 1993:3 and 1998:1.
Growth Rates (annual rates)
Current Clinton Actual
Forecast Plan 1998:1-1993.3
TRGH 5.0/8.0 4.3 5.0
COG 2.0 -4.8 -2.2
JG -1.0 -4.8 -1.8
TRGS 5.8/8.0 5.8 4.4
TRSH 6.0 6.0 7.9
COS 3.0 1.0 3.5
JS 1.0 1.0 1.6
Notes: 5.0/8.0 means 5.0% through 2000.4 and 8.0% thereafter.
5.8/8.0 means 5.8% through 2000.4 and 8.0% thereafter.
All tax rates are assumed to remain unchanged for the current forecast. It may help you to review the analysis of the Congressional and Clinton plans on the site to put the current assumptions in perspective. If you examine the federal government surplus variable (SGP), you can see that the current fiscal-policy assumptions result in a small surplus throughout the forecast period. The predicted value of SGP begins at $40.3 billion in 1998:2 and ends at $16.4 billion in 2003:4. No assumption about monetary policy is needed for the forecast because monetary policy is endogenous (equation 30, the interest rate reaction function). As can be seen from the second page of Table F1, the model is predicting the bill rate to rise to 5.5 percent by the beginning of 1999. The Results The basic message of the model's forecast for the near future is an optimistic one. The predicted growth rates in the next four quarters are 2.2, 3.0, 2.8, and 2.2 percent respectively. The unemployment rate falls to 4.3 percent by the first quarter of 1999, and the inflation rate as measured by the GDP price index (GDPD) only gradually rises (from 1.0 percent in 1998:2 to 2.0 percent in 2000:4). In short, no recession is forecast and no large increase in inflation is forecast. You can examine the tables of this forecast memo for the details, or you can print out the forecast values from the base data set for the model. Although the model is used to forecast through 2003:4, you should not put much confidence on the results beyond about 2000. Forecast error bands are fairly large for predictions this far ahead. Possible Experiments to Run The present forecast is a good base from which to make alternative fiscal-policy assumptions, depending on what you think Congress might do in light of the rosy budget picture. As a historical footnote, the model has consistently been more optimistic about the size of future federal government deficits than have most others, especially regarding future tax revenues, and the recent data suggest that the model has been right. The CBO and others have now moved in the optimistic direction. You may want to compare the current CBO forecasts with those from the model. My sense is that the model has conveyed useful information in the past about the deficit that was not in the CBO forecasts at the time. You may also want to drop the interest rate reaction function (equation 30) and put in your own assumptions about Fed behavior. |
| US Forecast Tables: April 30, 1998 |
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Table F1: Forecasts of Selected Variables--Real GDP
and Components
Table F1 (continued)--Prices and Wages Table F1 (continued)--Money and Interest Rates Table F1 (continued)--Employment and Labor Force Table F1 (continued)--Other Endogenous Table F1 (continued)--Selected Exogenous Table F2: Forecasts of the Federal Government Budget Table F3: Forecasts of the State and Local Government Budget Table F4: Forecasts of Savings Flows NIPA Table 1.1 NIPA Table 1.2 NIPA Table 3.2 NIPA Table 3.3 NIPA Table 7.1 |
| Table F1: Forecasts of Selected Variables |
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| Table F1 (continued) |
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| Table F1 (continued) |
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| Table F1 (continued) |
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| Table F1 (continued) |
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| Table F1 (continued) |
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| Table F2: Forecasts of the Federal Government Budget |
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| Table F3: Forecasts of the State and Local Government Budget |
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| Table F4 Forecasts of the Savings Flows |
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| NIPA Table 1.1 |
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| NIPA Table 1.2 |
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| NIPA Table 3.2 |
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| NIPA Table 3.3 |
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| NIPA Table 7.1 |
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