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APRIL24,2017

IMFandWorldBankinNeedofMoreModernForecastingMethods
BYBRENTM.EASTWOOD

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LastweektheInternationalMonetaryFund(IMF)andtheWorldBankheldtheirspringmeetingsinWashington,DC.Despiteworriesofrisinggeopoliticalthreats,populist
viewsontradeprotectionism,andpressuresofincreasedmigrationtoEurope,bothorganizationshavereleasedgenerallyoptimisticforecastsofglobaleconomicgrowthfor
2017.1

IdecidedtoexaminehowtheIMFandWorldBankproducestheseforecasts.SincetheIMFisoneoftheonlyentitiesinWashingtonthatisrequiredtomonitorthehealthof
theglobalfinancialsystem,oneassumesthatthereisanactualorvirtualfinancialwarroomthatprovidesearlywarningaboutthenextfinancialcrisisorbubble.Duetothe
IMFsandtheWorldBanksuniqueresponsibilities,itstandstoreasonthattwentyfirstcenturysoftwareandforecastingtoolsareusedbytheiremployeesonaregularbasis.

Morespecifically,onewouldalsoexpectthattheIMFandtheWorldBankutilizedatascience,machinelearning,artificialintelligenceandothernewfangledanalysismethods.
FutureSourcefoundthatbothorganizationsarehighlyadeptatmakingtheirdataopensourceforoutsideresearchersandthattheybothhavesomeofthebesteconomists
andresearchersintheworld.Theirwelltrainedexpertstraveltheglobe,personallygatherdata,andeffectivelyuseappropriateresearchmethods.

ButbothorganizationsappeartostillrelyonMicrosoftExcelandothertraditionalanddatedsoftware.Neitherhascompletelyembracedmoderndatasciencetechniquesor
machineintelligencealgorithmsfortheirpredictionsandforecasts.

TheimplicationsfortheIMFsandWorldBankslessevolvedresearchandanalysisarefirstspeedandtimeliness.Currently,theIMFsWorldEconomicOutlookandthe
WorldBanksGlobalEconomicProspectsareissuedandupdatedonlytwiceayear.Ifmachinelearningandartificialintelligencewereused,theseforecastscouldbe

updatedquarterly,monthly,orevenweekly.

Thesecondimplicationiscompetition.Traditionalmethodsofforecastingandpredictionareundergoingrapidchange.Alternativeacademicconceptsthateschew
mathematicalmodelingsuchasbehavioralfinanceandcomplexitytheoryburstonthesceneafterthe20082009globalfinancialcrisis.Certainauthorsarecallingfor
economicforecastingtoincludetechniquespracticedinphysicsandmeteorology.SomeprofessorsareusingalternativedatalikeGooglesearchstatisticstocreaterealtime
measuresofinflation.Startupentrepreneursarereleasingdailygrossdomesticproductgrowthstatisticsandincorporatingsatelliteimagerytoreportoneconomic
intelligence.Crowdsourcedpredictionsfromnonexpertshavebeenaroundforyears.ShouldntIMFandWorldBankkeepupwiththesetrends?
CurrentForecastingProcesses
TheIMFisrequiredinitsmandateviaArticleIVoftheIMFsArticlesofAgreement(https://www.imf.org/external/pubs/ft/aa/)toconductsurveillance
(http://www.imf.org/en/About/Factsheets/IMFSurveillance)oftheglobaleconomy.Thismeansithighlightspossibleriskstostabilityandadvisesonneededpolicy
adjustments.AnalysisandforecastsareconductedatthemicrolevelandmacrolevelwithatleastoneannualvisittoeachcountrybyIMFeconomicteams.Teams
interviewnumerousstakeholderssuchasgovernmentleaders,entrepreneurs,andlaborunionsforthelatestinsightsandtrends.

Around1,200(https://www.imf.org/external/about/staff.htm)IMFeconomistsworkinsixfunctionaldepartments,suchasfiscalaffairs,research,andstatistics.Economists
alsostaffthegeographicalareadepartments,suchasEuropeandSubsaharanAfrica.TheIMFhas189membercountriesandeachcountryisassignedatleastone
economist.Typically,afourorfivememberteam,includingvariousfunctionalexpertsandresearchassistants,analyzeseachcountry.

HowdoestheIMFcurrentlyconductitsforecastsforitsWorldEconomicOutlook?
Itusesabottomup(https://www.imf.org/external/pubs/ft/weo/faq.htm#q1g)approach.Economicteamscreateaseparateanddistinctmacroeconomicmodelforeach
country.Meanwhile,economistsinWashingtondeviseamacroorglobalmodelwithassumptionsaboutinterestrates,exchangerates,unemployment,andinflation.Each
countryforecastisthenaggregated,andthroughaseriesofiterations,statisticalanalysisatthemicrolevelisintegratedwiththemacrolevel.Theresultistheforecastof
theIMFWorldEconomicOutlookforeconomicgrowththatisoftenmentionedinthemedia.

WhattypeofsoftwaredoestheIMFuse?
ItdoesnotappearthattheIMFisfullyutilizingmoderndatasciencelanguages,tools,frameworks,andintegrateddevelopmentenvironmentssuchasR,RStudio,Python,
NumPy,Anaconda,SQL,Hadoop,Spark,orMongoDB.AccordingtoIMFjoblistings(https://www.imf.org/external/np/adm/rec/job/ra.htm),researchassistantsareexpected
tocollaboratewitheconomistsusingMicrosoftExcel,inadditiontoothertraditionaleconometricanalysissoftwaretools.Thesearecomprisedofestablishedsoftware
languagesanddashboardsforforecastingandsimulationssuchasTSP,Eviews,AREMOS,andRATS.

Manyoftheseprogramsareseveraldecadesold.TSPwasfirstconceivedinthe1960sandwaslastupdatedin2009.WindowsbasedEviewsispopular,versatile,robust,
wellsupported,andupdatedoftenbyitsdevelopers.Butitwasoriginallyintroducedin1965.AREMOSisconsideredbymanyasoldhatitsheydaywasmostlyinthe1980s.
RATSspecializesintimeseriesanalysisandithasgrownintoamorepowerfulprogram,butitdatesbacktothehalcyondaysofFortran.

However,inordertoupdateitsresearchmethodologies,theIMFhasheldbigdata(http://www.imf.org/external/np/seminars/eng/2015/bigdata/)symposiumsandstatistical
forums(http://www.imf.org/external/np/seminars/eng/2014/statsforum/)toraiseawarenessamongFundstaffaboutthepotentialuseofdatasciencetosupplementwork
processes.

TheIMFalsodeserveshighmarksformakingitseconomicdataopensourceforjournalists,academicsandthepublictoanalyze.TheIMFhasaFreeDataPortal
(http://data.imf.org/?sk=388DFA601D264ADEB505A05A558D9A42)withnumerousdatasetsfromeachmembercountry.Italsohasawebapp
(http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD)forvisualizingdatageographicallyandamobileapp
(https://itunes.apple.com/us/app/imfnewsanddatafortheipad/id414587764?mt=8)withdatafeatures.Theseinitiativesallowindependentdatascientiststosharesoftware
scriptsonIMFanalysisprojectsthroughcoderepositoriessuchasGitHub(https://github.com/csarven/imflinkeddata).

HowDoestheWorldBankCompare?
TheWorldBankismoreconcernedwithpovertyreductionratherthanglobalmacroeconomicsurveillance,butitdoesengageinanalysisandresearchduetoitsconstant
interactionandcollaborationwithitsmembergovernments.LiketheIMF,itgoestheextramiletomakeitsdata(http://data.worldbank.org/)opensource.TheWorldBanks
OpenGovernmentDataToolkit(http://opendatatoolkit.worldbank.org/en/)hasawealthofoptionsandtools,includingaverytransparentdescription
(http://opendatatoolkit.worldbank.org/en/supply.html)abouttheaccuracy,reliability,strengths,andweaknessesofitsdata,inadditiontohowvariousdataiscollected.

TheWorldBankseconomicforecast,the2017GlobalEconomicProspects(https://openknowledge.worldbank.org/bitstream/handle/10986/25823/9781464810169.pdf),also
usescountryspecificmodels,buttheBankreliesonvectorautoregressions(VARs),whicharetimeserieseconometricmodelsfamiliartoeconomists.Theseregressions
utilizeCholeskyordering,meaningthatexogenousvariablesareplacedinthemodelinadecreasingorderofexogenity.Inotherwords,theWorldBankisappropriatelytaking
intoconsiderationoutsidethemodelriskssuchasglobalfinancialmarketuncertaintydomesticfinancialmarketorpoliticaluncertaintyshortterminterestratesand

otherhazards.Manyforecasterswerecriticizedduringthe20082009financialcrisisfornotincludingtheseBlackSwan(https://en.wikipedia.org/wiki/Black_swan_theory)
risksintotheirmodels.

Thus,theWorldBankusesstraightforwardandtraditionalmethodsofmodelingandforecasting.Alloftheeconometricforecastingsoftwarelistedpreviouslycanperform
theseestimations,evenmoregeneralanalytictoolssuchasStataandSPSS,favoredbymanysocialscientists,couldbeutilizedtoestimatetheseregressions.Indeed,
accordingtoaWorldBankcareerlistingforneweconomists(http://web.worldbank.org/external/default/main?
pagePK=8454041&piPK=8454059&theSitePK=8453353&JobNo=170745&contentMDK=23158967&order=descending&sortBy=jobreq
num&location=ALL&menuPK=8453611&JobType=Professional%20%26%20Technical&JobGrade=GF),theBankrequeststhatitsapplicantsbeproficientinMicrosoftExcel
andStata.

TheWorldBankmaybemovingabitfasterthantheIMFinintegratingdatascienceandmachinelearningintoitsforecasts.ArecenthiringnoticefromtheBankcallsfor
applicationsforaDataScientist(http://web.worldbank.org/external/default/main?
pagePK=8454041&piPK=8454059&theSitePK=8453353&JobNo=170687&contentMDK=23158967&order=descending&sortBy=jobreq
num&location=ALL&menuPK=8453611&JobType=Professional%20%26%20Technical&JobGrade=GF)position.TheadvertisementrevealsthattheBankhasabigdata
groupinitsGlobalOperationsKnowledgeManagementunit.TheDataSciencecandidatewouldusetechniquesinmachinelearningandnaturallanguageprocessing,
accordingtothelisting.
accordingtothelisting.

ArecentWorldBankblogpost(http://blogs.worldbank.org/jobs/cannewdevelopmentsmachinelearningandsatelliteimagerybeusedestimatejobs)alsopositedthat
machinelearningtechniquesandsatellitedatahaveadvantageswhenanalyzingagricultureandactivityinvillagesforsignsofeconomicgrowth.Thepostsaysthesetools
aremoreefficientthananarmyofenumeratorscarryingclipboardsandpencilsoutinthefield,interviewingpeopleabouttheirchangingfortunes.

IsitaproblemthatanalystsattheIMFandWorldBankarestillusingExcelspreadsheetsandnotas
manydatasciencetoolsandmachineintelligencealgorithms?
IMF/WorldBankresearchmethodsforforecastingaremostlybehindthetimes.TodaysdatascientistsuselanguagessuchasR,SQL,andPython.Scriptswritteninthese
languagesarequickerandmoreefficientthanExcelorStata.Justafewlinesofcodescanrunregressions.Itiseasytoaddmachinelearningalgorithmsthatcanrender
unlimitednumbersofpredictionsandsimulations.Moreover,usingR,SQL,andPythonwouldbetterjoindatafromdisparatesourcesperfectforaggregatingdatafrom189
countries.Thesesoftwarelanguagesmakeiteasierforeconomiststocollaborate,whichisimportantsincetheIMFalonehas1,200economists.

UsingPythonhasanotheradvantagewhenwranglingbigdataprocessingframeworkssuchasHadoop,Spark,andMongoDB.TheIMFandWorldBankcouldusethese
platformstoanalyzesocialmediafromvariouscountriesortointegratesatelliteimageryforrealtimeeconomicdevelopmentanalysis.

Adoptingthesedatasciencetechniquescanhelpwithspeedandtimeliness.Thiswouldenablethereleaseofmonthlyreportsinsteadofbiannualforecasts.Holdinga
contesteachmonthbetweenpredictionsfromhumananalystsandpredictionsfrommachineintelligenceisanotherideatogeneratecontentquickly.

Tokeepupwithcompetition,theIMFandWorldBankcouldrecruiteconomistsfromdifferentschoolsofthoughtwhoadheretoalternativetheories.Itcouldalsobringin
insightsfromresearcherswhorepresentthehardsciences,psychology,anthropology,andsociology.Partneringwithstartupsisanotherwaytobringinthelatest
technologiesandideas.

Relevanceisanotherchallengethatshouldbeaddressed.Marketresearchconductedviareadersurveyscouldyieldinsightsintowhatpeoplewantfromforecasts.TheIMF
doesindeedhaveasurvey(https://survey.eu.qualtrics.com/jfe/form/SV_03f76LbGDtkiH09?&Source=WEB)availableonline,butitcouldbebettertargetedtoward
policymakers.Thereportsarecurrentlyverylong.TheWorldBankslastissuewas276pages.TheIMFslastupdatehasfivedifferentdownloads.Itmaybeeasierto
advertiseanddisseminateshorterdocuments.

Thegoodnewsisthatitisnotdifficulttobuilddatascienceteamsthatwouldmodernizeforecastingandpredictions.TheIMFandWorldBankareeliteorganizationswith
ampleresources.Theyalreadyhaveanexistingpooloftalentandareputationforaccuracy.Therefore,avirtualoractualfinancialwarroomthatcanpredictthenext
economiccrisisisanattainablegoal.

BrentM.Eastwood,PhDistheFounderandCEOofGovBrainIncthatpredictsworldeventsusingmachinelearning,artificialintelligence,naturallanguageprocessing,and
datascience.Heisaformermilitaryofficerandawardwinningeconomicforecaster.Brenthasfoundedandledcompaniesinsectorssuchasbiometricsandimmersive
video.HeisalsoaProfessorialLectureratTheGeorgeWashingtonUniversity'sElliottSchoolofInternationalAffairs.

1.TheIMFjustrevealedthroughitsApril2107WorldEconomicOutlookthatthisyearsglobaleconomicgrowthwouldriseto3.5percentcomparedto3.1percentlastyear.
TheWorldBanks2017forecastfromJanuarypredictedarespectable2.7percentexpansion.
StrategicForesightInitiative(/component/tags/tag/90strategicforesightinitiative)

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