Forecasting World Output: The Rising Importance of Emerging Asia

  • Alessandro Borin
  • Riccardo Cristadoro
  • Roberto Golinelli
  • Giuseppe Parigi
Chapter

Abstract

The rapid growth of the emerging markets and of China in particular has changed the economic landscape: emerging Asias share of world trade has grown from about 13% in 1990 to almost 23% in 2008, and its aggregate GDP now accounts for more than 25% of world output, compared with less than 12% in 1990. In this paper we focus on the consequences for the assessment of the global outlook and the specification of forecasting equations. Our main results are that (1) the rise of the emerging countries has led to a sharp change in the correlation of growth rates among main economic areas; (2) this is clearly detectable in forecasting equations too, as a structural break occurring in the 1990s; (3) hence, inferences about global developments based solely on the industrialized countries are highly unreliable; (4) the otherwise cumbersome task of monitoring many and little-known countries can be tackled by resorting to very simple bridge models (BM); (5) BM performance is in line with that of the most widely quoted predictions (WEO, Consensus Forecasts) both before and during the recent crisis; and (6) for some emerging economies, BMs would have provided even better forecasts during the recent crisis.

Keywords

International Monetary Fund Euro Area Trade Flow Forecast Horizon Asian Economy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

  1. Altissimo F, Cristadoro R, Lippi M, Forni M, Veronese G (2010) New-eurocoin: tracking economic growth in real time. Rev Econ Stat 92(4):1024–1034CrossRefGoogle Scholar
  2. Amiti M, Freund C (2008) An anatomy of China’s export growth. In: Feenstra R, Wei S-J (eds) China’s growing role in world trade. University of Chicago Press, ChicagoGoogle Scholar
  3. Andrews DWK (1993) Tests for parameter instability and structural change with unknown change point. Econometrica 61(4):821–856CrossRefGoogle Scholar
  4. Arouba SB, Diebold FX, Kose MA, Terrones ME (2010) Globalization, the business cycle, and macroeconomic monitoring. NBER working paper, no. 16264Google Scholar
  5. Baffigi A, Golinelli R, Parigi G (2004) Bridge models to forecast the Euro area GDP. Int J Forecast 20(3):447–460CrossRefGoogle Scholar
  6. Banbura M, Domenico G, Reichlin L (2010) Nowcasting, ECB working paper no. 1275. Available at SSRN: http://ssrn.com/abstract=1717887
  7. Barhoumi K, Benk S, Cristadoro R, Den Reijer A, Jakaitiene A, Jelonek P, Rua A, Rünstler G, Ruth K, Van Nieuwenhuyze C (2009) Short-term forecasting of GDP using large datasets: a pseudo real-time forecast evaluation exercise. J Forecast 28(7):595–611, WileyCrossRefGoogle Scholar
  8. Bulligan G, Golinelli R, Parigi G (2010) Forecasting monthly industrial production in real-time: from single equations to factor-based models. Empirical Econ 39(2):303–336CrossRefGoogle Scholar
  9. Camacho M, Perez-Quiros G (2008) Introducing the Euro-STING: short term indicator of Euro area growth, Banco de España working paper no.0807Google Scholar
  10. Chauvet M, Yu C (2006) International business cycles: G7 and OECD Countries. Econ Rev 91(1):43–54, Federal Reserve Bank of Atlanta, first quarterGoogle Scholar
  11. Croushore D, Stark T (2001) A real-time data set for macroeconomists. J Econom 105:111–130CrossRefGoogle Scholar
  12. Fair RC, Shiller RJ (1990) Comparing information in forecasts from econometric models. Am Econ Rev 80(3):375–389Google Scholar
  13. Giacomini R, White H (2006) Tests of conditional predictive ability. Econometrica 74:1545–1578CrossRefGoogle Scholar
  14. Golinelli R, Parigi G (2007) The use of monthly indicators to forecast quarterly GDP in the short run: an application to the G7 countries. J Forecast 26(2):77–94CrossRefGoogle Scholar
  15. Golinelli R, Parigi G (2008) Real time squared: a real-time data set for real-time GDP forecasting. Int J Forecast 24(3):368–385CrossRefGoogle Scholar
  16. He D, Zhang W (2008) How dependent is the Chinese economy on exports? Hong Kong monetary authority working paper, no. 14Google Scholar
  17. Matheson T (2011) New Indicators for Tracking Growth in Real Time. IMF Working Paper WP/11/43Google Scholar
  18. Koopman R, Wang Z, Wei S-J (2008) How much of Chinese exports is really made in China? Assessing domestic value added when processing trade is prevalent. NBER working paper, no. 14109Google Scholar
  19. Kose MA, Prasad ES, Terrones M (2008) Understanding the evolution of world business cycles. J Int Econ 75:110–130CrossRefGoogle Scholar
  20. Marini M, Zollino F (2012) The macroeconomic developments in China: the statistical challenges,  chapter 3 of this volume
  21. Newey WK, West KD (1987) A simple positive semi-definite heteroskedacticity and autocorrelation-consistent covariance matrix. Econometrica 55:703–708CrossRefGoogle Scholar
  22. Park D, Shin K (2009) Can trade with the people’s Republic of China be an engine of growth for developing Asia? ADB Economics Working Paper Series 172, Asian Development BankGoogle Scholar
  23. Pesaran MH, Schuermann T, Weiner S (2004) Modelling regional interdependencies using a global error-correcting macroeconometric model. J Bus Econ Stat 22(2):129–162CrossRefGoogle Scholar
  24. Pesaran MH, Schuermann T, Smith V (2009) Forecasting economic and financial variables with global VARs. Int J Forecast 25:642–675CrossRefGoogle Scholar
  25. Schott PK (2008) The relative sophistication of Chinese exports. Econ Policy 23(53):5–49CrossRefGoogle Scholar
  26. Visco I (2009) The financial crisis and economists’ forecasts. Commencement address to the students of the master in public Economics at the faculty of Economics, La Sapienza University in Rome, Available at: http://www.bancaditalia.it/interventi/intaltri_mdir/visco_040309/Visco_040309en.pdf. Accessed 4 Mar 2009
  27. Wang Z, Wei S-J (2008) What accounts for the rising sophistication of China’s exports? NBER working papers, no. 13771Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Alessandro Borin
    • 1
  • Riccardo Cristadoro
    • 1
  • Roberto Golinelli
    • 2
  • Giuseppe Parigi
    • 1
  1. 1.International Economic Analysis and Relations DepartmentBank of ItalyRomeItaly
  2. 2.Department of EconomicsUniversity of BolognaBolognaItaly

Personalised recommendations