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Dr. Félicien USENGUMUKIZA Senior Lecturer at National University of Rwanda UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA Sub regional Office for Eastern.

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Presentation on theme: "Dr. Félicien USENGUMUKIZA Senior Lecturer at National University of Rwanda UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA Sub regional Office for Eastern."— Presentation transcript:

1 Dr. Félicien USENGUMUKIZA Senior Lecturer at National University of Rwanda UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA Sub regional Office for Eastern Africa (SRO – EA) Kigali, March 13 TH 2010

2 Overview of Macroeconomic models and Forecasting Objective of the study Methodology Justification of Modelling and Forecasting Methods in EAC Central Banks Challenges and Gaps related to Modelling and Forecasting use in EAC Central Banks Conclusion Recommendations

3 OVERVIEW OF MACROECONOMIC MODELS AND FORECASTING

4 Macroeconomic model is a basic tool of analysis used to describe, to explain and to understand macroeconomic phenomenon.

5 A model serves as like a laboratory of experimentation or for testing hypothesis Making assumptions regarding behaviour of macro variables, Specifying equations expressing the relationship between the selected macroeconomic variables Specifying and defining variables used in the model, Specifying criteria for drawing conclusions Expressing economic identities if required

6 Economic forecasts predict the course of the aggregate economy and concentrate on variables such as GDP analysis, interest rates, the rate of inflation, and the rate of unemployment. Forecasts of private consumption and investment, government expenditures, and net exports help government policymakers responsible for fiscal policy.

7 QUANTITATIVE METHODS QUALITATIVE METHODS FORECASTING METHODS CAUSAL FORECASTING METHODS TIME SERIES METHODS JUDGEMENTAL METHODS use historical data as the basis of estimating future outcomes use the assumption that it is possible to identify the underlying factors that might influence the variable that is being forecast incorporate intuitive judgements, opinions and subjective probability estimates

8 MODELLING & FORECASTING METHODS IN EAC CENTRAL BANKS

9 To undertake a stocktaking of the competency gaps in Economic Modelling and Forecasting in the five central banks; To define the areas where the overall level of the region stands behind; To define needs of a training capacity building program and the recipient candidates; To formulate recommendations on training modules and general content.

10 The field work has been identified as the best approach. It is in this context that the tour in the five EAC central banks was carried out within two weeks. It has been identified that Research Department in each central bank would be the best source of information related to the needs in terms of training in Modelling and Forecasting Program.

11 To develop adequate skilled capacity in analytical capability of EAC Central Banks to effectively manage the monetary policies and monitor the performance of the Economies in the Region, To enhance the capacity in management of reserves money and liquidity forecasting, To understand how financial markets work and impact on monetary policy; To undertake surveys on inflation expectations; To understand interaction between monetary policy and real sector, and liquidity forecasting, To eliminate liquidity phobia associated with commercial banks borrowing from central bank.

12 Bank of Tanzania National Bank of Rwanda (BNR) Bank of Uganda Central Bank of Kenya (CBK) Banque de la République du Burundi (BRB) Research Department Directorate of Research Large Macro econometric Modelling Section Research Department Senior Directorate (Monetary Policy and Research, Financial Stability) Modelling & Forecasting Division Monetary & Financial Market Department Directorate of Research STUDY ON MODELLING AND FORECASTING IS A TASK OF RESEARCH DEPARTMENT IN EAC CENTRAL BANKS

13 Some Central banks are not using the econometric approach in modelling and forecasting analysis All EAC central Banks witness a gap in terms of high qualified staff equipped with econometric background Use of adequate software related to modelling and forecasting is almost inexistent Lack of harmonisation in terms of forecasting techniques. This leads to the diversification in terms of interpreting the results from respective central banks

14 Scarcity of sound forecasting frameworks weakens budgeting and planning processes in the continent; EAC Central Banks remain far behind in building full-fledged macroeconomic models and in providing accelerated training for qualified modellers and forecasters ; Macroeconomic forecasting in EAC Central Banks has been highly dependent on models developed in others central banks in the world, which were not true representation of local realities;

15 Modelling and Forecasting Program is designed to provide anyone who needs to make financial decisions, The reality found in EAC central Banks confirms that the training in Modelling and Forecasting is for great necessity, The heads of research department in respective EAC Central banks are welcoming the initiative proposed by UNECA of providing such kind of training, As the EAC is deepening and widening its regional integration, the harmonisation of macroeconomic and financial analysis will facilitate to eliminate gaps observed in interpretation of national and regional economy.

16 EAC central Banks needs training in modelling and forecasting in order to facilitate the harmonisation of macro economic and financial analysis with the community. due to existing gaps between different central banks, it would be necessary to organise internal training related to specific needs and gaps of each individual central bank. The share of experience among staff of central banks would accelerate the harmonisation of financial analysis Due to the project establishing the EAC central bank, some activities would be executed jointly with the five central banks. The EAC needs to establish its own model related to its reality rather than continuing using models applied in advanced economies.

17 N˚CountryInstitutionName of contacted Person PositionAddressPhone number 1.Rwanda National Bank of Rwanda (BNR) Dr. Kigabo Rusuhuzwa Thomas Chief Economist P.O Box 531 Kigali -Rwanda Burundi Banque de la République du Burundi (BRB) Mr. Sota Bonaventure Directeur Responsable du service des Etudes P.O Box 705 Bujumbura - Burundi +257 Mr. Audace Niyonzima Deputy Director Monetary & Financial Market Department +257 Mr. Joseph Bahizi Head of Monetary & Financial Market Department UgandaBank of Uganda Dr. Adam Mugume Assistant Director Head, Modelling & Forecasting Division P.O Box 7120 Kampala - Uganda +256 Mr. Francis Leni Anguyo Head, Large Macroeconometric Modelling Section Research Department TanzaniaBank of Tanzania Dr. Kamili Alphonce Kombe Deputy Director, Research P.O Box 2939 Dar es Salaam Tanzania 5.Kenya Central Bank of Kenya (CBK) Mr. Charles G. KooriDirector of Research Department P.O Box Nairobi - Kenya +254 Mr. Lukas NjorogeResearch Department+254

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