1. UNITED NATIONS
ECONOMIC COMMISSION FOR AFRICA
Sub regional Office for Eastern Africa (SRO – EA)
MODELLING & FORECASTING SYSTEM IN EAC CENTRAL BANKS: Empirical analysis
Dr. Félicien USENGUMUKIZA
Senior Lecturer at National University of Rwanda
Kigali, March 13TH 2010

2. Presentation Outline Overview of Macroeconomic models and Forecasting
Objective of the study
Methodology
Justification of Modelling and Forecasting Methods in EAC Central Banks
Challenges and Gaps related to Modelling and Forecasting use in EAC Central Banks
Conclusion
Recommendations

3. OVERVIEW OF MACROECONOMIC MODELS AND FORECASTING

4. Macroeconomic model
Macroeconomic model is a basic tool of analysis used to describe, to explain and to understand macroeconomic phenomenon.

5. Macroeconomic model (Cont’d) Why macroeconomic model matter?
A model serves as like a laboratory of experimentation or for testing hypothesis
Making assumptions regarding behaviour of macro variables,
Why macroeconomic model matter?
Specifying equations expressing the relationship between the selected macroeconomic variables
Specifying and defining variables used in the model,
Expressing economic identities if required
Specifying criteria for drawing conclusions

6. Economic Forecasting
Economic forecasts predict the course of the aggregate economy and concentrate on variables such as GDP analysis, interest rates, the rate of inflation, and the rate of unemployment. Forecasts of private consumption and investment, government expenditures, and net exports help government policymakers responsible for fiscal policy.

7. use historical data as the basis of estimating future outcomes
FORECASTING
METHODS
QUALITATIVE
METHODS
QUANTITATIVE
METHODS
use the assumption that it is possible to identify the underlying factors that might influence the variable that is being forecast
use historical data as the basis of estimating future outcomes
incorporate intuitive judgements, opinions and subjective probability estimates
JUDGEMENTAL
METHODS
TIME SERIES
METHODS
CAUSAL
FORECASTING
METHODS

8. MODELLING & FORECASTING METHODS IN EAC CENTRAL BANKS

9. Objective of the Study
To undertake a stocktaking of the competency gaps in Economic Modelling and Forecasting in the five central banks;
To define the areas where the overall level of the region stands behind;
To define needs of a training capacity building program and the recipient candidates;
To formulate recommendations on training modules and general content.

10. Methodology
The field work has been identified as the best approach. It is in this context that the tour in the five EAC central banks was carried out within two weeks. It has been identified that Research Department in each central bank would be the best source of information related to the needs in terms of training in Modelling and Forecasting Program.

11. Justification of modelling and Forecasting program in EAC Central banks
To develop adequate skilled capacity in analytical capability of EAC Central Banks to effectively manage the monetary policies and monitor the performance of the Economies in the Region,
To enhance the capacity in management of reserves money and liquidity forecasting,
To understand how financial markets work and impact on monetary policy;
To undertake surveys on inflation expectations;
To understand interaction between monetary policy and real sector, and liquidity forecasting ,
To eliminate liquidity phobia associated with commercial banks borrowing from central bank.

12. STUDY ON MODELLING AND FORECASTING IS A TASK OF RESEARCH DEPARTMENT IN EAC CENTRAL BANKS
National Bank of Rwanda (BNR)
Bank of Uganda
Bank of Tanzania
Central Bank of Kenya (CBK)
Banque de la République du Burundi (BRB)
Senior Directorate (Monetary Policy and Research, Financial Stability)
Modelling & Forecasting Division
Directorate of Research
Research Department
Directorate of Research
Large Macro econometric Modelling Section Research Department
Monetary & Financial Market Department

13. Modelling and forecasting system is facing a huge challenge in all EAC Central banks
Some Central banks are not using the econometric approach in modelling and forecasting analysis
All EAC central Banks witness a gap in terms of high qualified staff equipped with econometric background
Use of adequate software related to modelling and forecasting is almost inexistent
Lack of harmonisation in terms of forecasting techniques. This leads to the diversification in terms of interpreting the results from respective central banks

14. Gaps related to use of modelling & forecasting system in EAC Central Banks
Scarcity of sound forecasting frameworks weakens budgeting and planning processes in the continent;
EAC Central Banks remain far behind in building full-fledged macroeconomic models and in providing accelerated training for qualified modellers and forecasters ;
Macroeconomic forecasting in EAC Central Banks has been highly dependent on models developed in others central banks in the world, which were not true representation of local realities;

15. Conclusion
Modelling and Forecasting Program is designed to provide anyone who needs to make financial decisions,
The reality found in EAC central Banks confirms that the training in Modelling and Forecasting is for great necessity,
The heads of research department in respective EAC Central banks are welcoming the initiative proposed by UNECA of providing such kind of training,
As the EAC is deepening and widening its regional integration, the harmonisation of macroeconomic and financial analysis will facilitate to eliminate gaps observed in interpretation of national and regional economy.

16. Recommendations
EAC central Banks needs training in modelling and forecasting in order to facilitate the harmonisation of macro economic and financial analysis with the community.
due to existing gaps between different central banks, it would be necessary to organise internal training related to specific needs and gaps of each individual central bank.
The share of experience among staff of central banks would accelerate the harmonisation of financial analysis
Due to the project establishing the EAC central bank, some activities would be executed jointly with the five central banks.
The EAC needs to establish its own model related to its reality rather than continuing using models applied in advanced economies.

17. Name of contacted Person
List of contacted Persons N˚
Country
Institution
Name of contacted Person
Position
Address
Phone number 1.
Rwanda
National Bank of Rwanda (BNR)
Dr. Kigabo Rusuhuzwa Thomas
Chief Economist
P.O Box 531 Kigali -Rwanda 2.
Burundi
Banque de la République du Burundi (BRB)
Mr. Sota Bonaventure
Directeur Responsable du service des Etudes
P.O Box 705 Bujumbura - Burundi
Mr. Audace Niyonzima
Deputy Director Monetary & Financial Market Department
Mr. Joseph Bahizi
Head of Monetary & Financial Market Department 3.
Uganda
Bank of Uganda
Dr. Adam Mugume
Assistant Director Head, Modelling & Forecasting Division
P.O Box 7120 Kampala - Uganda
Mr. Francis Leni Anguyo
Head, Large Macroeconometric Modelling Section Research Department 4.
Tanzania
Bank of Tanzania
Dr. Kamili Alphonce Kombe
Deputy Director, Research
P.O Box 2939 Dar es Salaam Tanzania 5.
Kenya
Central Bank of Kenya (CBK)
Mr. Charles G. Koori
Director of Research Department
P.O Box Nairobi - Kenya
Mr. Lukas Njoroge
Research Department

18. Thank you for your attention!