Think tank pushes `hybrid' economic forecasting

An economic think-tank group led by former NEDA czar and University of the Philippines economic professor Cayetano Paderanga Jr. has linked up with three of the biggest business organizations in the country in developing a new system of economic forecasting which promises to be speedier and more accurate than government forecasting.

The tie-up was hammered out after Dr. Paderanga's Institute for Development and Econometric Analysis Inc. (IDEA) unfolded before key executives of its partners in the project -- the Philippine Chamber of Commerce and Industry (PCCI), the Employers Confederation of the Philippines (ECOP) and the Philippine Exporters Confederation (Philexport) -- what he called a "hybrid" approach to economic forecasting.

The new system, Paderanga, explained, combines the most commonly used system in the country known as "macroedel" and the time-series models which capture the behavior of the data over time. The National Economic and Development Authority (NEDA) and the Asian Development Bank (ADB) use the structural model in their forecasts.

Structural models require voluminous data and take a long time to give results. The time lag does not allow corporate and government planners enough leeway to make quick decisions on the basis of new trends and directions taken by the economy.

The hybrid system, Paderanga said, because of its simplicity and its use of less information than the traditional model, maximizes short-term forecast accuracy. This gives the end-users the lead time to adjust their strategies, investment plans, work programs with quick decisions.

Stressing the practical use of economic forecasting, Paderanga, in his paper explaining the new system, pointed out, "people are taking positions and entering into commitments in the light of future events. With this kind of information, business people will position themselves so as to maximize profits. From the perspective of policy makers, taking into account the likely direction of the economy in the future allows them to set the appropriate economic policies."

In looking at raw data, the hybrid system takes into account both the seasonal behavior of the major sectors of the economy, its pattern of ups and down, as well as long-term grow performance of these sectors over the years.

Instead of depending solely on stale statistical data from the different agencies of government like the National Statistics Office, Board of Investments, the Bangko Sentral ng Pilipinas and the Bureau of Agricultural Statistics, IDEA will eventually work out with industry players the inclusion of raw data from the industry groups in determining the directions the economy is taking, not only on a yearly basis as done until now, but on a quarterly basis.

"We plan to team up with the industry associations in building an up-to-date and more reliable data base for short-term forecasting," Paderanga said.

As the system is fine-tuned, the think-tank and business partners, will also move from the present forecasting of just the gross national product (GNP) and the gross domestic product (GDP) into regional and sectoral forecasting. -- Philexport News & Features