OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Forecasting developing Asian economies during normal times and large external shocks: Approaches and challenges

Predicting future economic trends appropriately is essential to economic policy making. Currently, the DSGE model approach is a benchmark economic forecasting technique widely employed. However, large external shocks, such as large-scale natural disasters and COVID-19, challenge current approaches to economic forecasting. Multiple approaches will be needed in this situation, including reduced-form model and indicator-based approaches. This paper discusses different forecasting approaches, by comparing forecasts during normal times and crisis periods. The Medium-term Projection Framework (MPF), used in the Economic Outlook for Southeast Asia, China and India series, receives particular attention. The paper also examines challenges unique to developing Asia and large external shock periods. The measurement of potential output, difficulties in modelling the credit channel, and the incorporation of Big Data pose challenges regarding developing Asian countries, and large external shocks may force deviation from assumptions of traditional frameworks such as rational expectations. Finally, this paper points out that natural disasters will be a useful proxy for large shocks in Developing Asia.


Keywords: Developing Asia, time series analysis, large external shocks, Forecasting, DSGE model, natural disasters, COVID-19
JEL: C53: Mathematical and Quantitative Methods / Econometric Modeling / Forecasting and Prediction Methods; Simulation Methods; O20: Economic Development, Innovation, Technological Change, and Growth / Development Planning and Policy / Development Planning and Policy: General; O53: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Economywide Country Studies: Asia including Middle East; Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters and Their Management; Global Warming; E17: Macroeconomics and Monetary Economics / General Aggregative Models / General Aggregative Models: Forecasting and Simulation: Models and Applications
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