Project leaders
- Bill Martin
- Graham Gudgin
Project team
- Ken Coutts
- Graham Gudgin
- Bob Rowthorn
- Neil Gibson (Ulster)
Project status
Ongoing
Overview
Background
This work, which formed part of the macro component of the UK~IRC Business Services project, follows in the tradition of stock-flow modelling pioneered by the late Professor Wynne Godley. The research is not publicly funded. The modelling is used to inform strategic macroeconomic policy analysis of the UK economy. The work also provides a top-down perspective relevant and complementary to research on the balance of payments, led by Ken Coutts and Bob Rowthorn as part of the Services project. The project has produced numerous outputs since 2007 (see previous annual reports).
Macro-economic forecasting and policy analysis for the UK economy
The project involves a team based at the CBR and Northern Ireland. The CBR team consists of Ken Coutts, Graham Gudgin and Dr Saite Lu based in development studies and Sidney Sussex College. Colleagues in Northern Ireland are Professor Neil Gibson, Chief Economist for Ernst and Young Ireland and Jordan Buchanan is now Chief Economists at PropertyPal, Belfast. Professor Gibson and Mr Buchanan were formerly at the Ulster University Economic Research Centre where Dr Gudgin was Chairman. Both have elected to remain on the project in a voluntary capacity Dr Cam Bowie (no affiliation) is also member of the team with special reference to financial forecasting.
Limited work was undertaken on the project during the year August 2020-July 2021 partly due to difficulties in meeting in person during the coronavirus lockdowns and also because of the major disruption to normal economic activity and associated difficulties in official statistics on the UK and other major economies.
The end of the lockdowns towards the end of this period and the beginnings of a post-COVID-19 recovery in the UK economy have allowed us to begin work on the project once again towards the end of the period, in two areas:
- Maintenance and updating of the CBR macro-economic model of the UK economy (UKMOD). One round of data revision has been completed largely by our Ireland colleagues. This an autumn 2021 update incorporating the 2020 quarterly National Accounts data revisions. A final update incorporating 2020 national accounts will be completed when the 2021 Blue Book becomes available in October 2021. Both are major exercises which keep the databases relevant for the most up to date forecast and scenario work. With the revised data, a process of equation revision also took place, as part of a continuous process of model improvement.
- Work is planned on the major extension of the CBR model to include a financial module (FINMOD) with a range of assets and liabilities for each sector. When completed this will make the model into a full-developed stock-flow consistent system along the lines laid out in Godley and Lavoie’s ‘Monetary Economics’. Assisted by Dr Cam Bowie, we already have a working model and a database of financial assets and liabilities. Further work is planned to revise this model including the insertion of on a set of behavioral equations for the FINMOD system. We are discussing the possibility of financial support for this work with the FRIBUS institute at the University of Freiburg in Germany involving using the extend model in the generation of scenarios in connection with Universal Basic Incomes financed with Sovereign money.
Progress
Work during the year August 2021-July 2022 consisted of five main strands:
- Maintenance and updating of the CBR macro-economic model of the UK economy (UKMOD). Two rounds of data revision have been completed largely by our Ireland colleagues. These were an Autumn 2021 update incorporating the 2020 National Accounts Blue Book data revisions, and a Spring 2021 Provisional Update of 2019 data based on ONS Quarterly estimates and other revised data. Both are major exercises which keep the data-bases relevant for the most up to date forecast and scenario work. With the revised data, a process of equation revision also took place, as part of a continuous process of model improvement.
- We have not published a forecast report since the referendum in 2016. The uncertainties caused by the Brexit Referendum result and most recently the COVID-19 (coronoravirus) pandemic mean that short-term forecasts are dominated by somewhat arbitrary assumptions on business investment and household consumption initially around the impact of Brexit-related uncertainty and latterly on COVID. While Brexit-related uncertainties remain important, there is now three years post-referendum data to guide us what the economic impact of the uncertainties are likely to be. For COVID the uncertainties remain severe and it will not be until well into 2022 that we have enough data to assess the scale of the short-term economic impact
- Work has proceeded further on the major extension of the CBR model to include a financial module (FINMOD) with a range of assets and liabilities for each sector. When completed this will make the model into a full-developed stock-flow consistent system along the lines laid out in Godley and Lavoie’s ‘Monetary Economics’. Assisted by Dr Cam Bowie, we have a working model and a database of financial assets and liabilities. Further work is taking place on a set of behavioral equations for the FINMOD system.
- We have continued to evaluate the impact of Brexit in order to input assumptions on the potential long-term economic impact of Brexit.
- Graham Gudgin has been now a member of the Department of Trade Expert Modelling Group assessing the economic of trade agreements for the UK in 2021/22 and the knowledge and experience gained from this year-long engagement will assist in improving trade-modelling aspects of the CBR macro-economic model.