Where in the WEO are we?

Twice a year, staff of the International Monetary Fund rolls out forecasts for over 190 economies for the next five years. Their flagship publication, the World Economic Outlook (WEO), is released around the spring and fall meetings of the IMF and World Bank, ensuring an audience of senior officialdom from around the world.

But it is not the quality or cleverness of what may appear in the WEO that makes it a must-read. Rather, the WEO’s conventionality makes it a window on official thinking through which outsiders can peer. After all, the IMF fishes for staff in the same gene pool as major central banks and finance ministries and often employs a "catch and release" policy in which more than a few hires go back to work for their governments. While at the IMF, some of the same staff involved with the WEO also participates in the annual reviews of member countries with local officials (the "Article IV" consultations) that further serve to align views. Moreover, the draft WEO is reviewed by the IMF executive directors, who are appointees of the capital-contributing countries comparing what they see in DC with what they hear from back home.

The undertaking is massive, in that the staff forecast about 40 variables each across 192 economies. The sample ranges from populations of 11,000 to 1,382,710 (in 2016), with some of the places obscure enough to serve as hideouts for Carmen Sandiego. IMF staff resources are limited. As a result, there is no magical thinking, only a straightforward application of the models found, say, in intermediate-level textbooks.

So, the WEO is a good place to understand the conventional wisdom on the major forces shaping recent economic performance and their expected persistence. By way of example, we will tease out the basic economic relationships supporting the WEO outlook for the US. Using both historical data and forecasts, we estimate the building blocks of a standard macro model—aggregate demand, aggregate supply, and inflation determination. Do not think of these as independent estimates of these relationships, but rather what IMF researchers think those relationships are and how they think they have changed. Importantly, their views are probably similar to their Fed counterparts.

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