Тузувчи : Файзуллаева Н

Calibrating the Global Insight Macroeconomic Model. Calibrating the Global Insight model to CBO’s current-law baseline involves iteratively adjusting the control forecast so that, when solved, the Global Insight model endogenously reproduces all projections of economic and budgetary variables published by CBO.39 This is a multistep process. In each step, we replace variables in the GI model with CBO’s projections. We then solve the GI model so that those variables that have not been targeted adjust. In essence, we are using econometrically estimated relationships and accounting identities within the GI model to create a forecast that is consistent with what we know about CBO’s baseline economic and budgetary projections.

Step 1. We first set key economic assumptions and price levels. This process involves setting the price of oil and the trade-weighted U.S. dollar exchange rate so that they are consistent with what we know about CBO’s baseline eco­nomic assumptions. It also involves setting some policy variables such as the statutory corporate income tax rate and the Federal social insurance tax rate so that they are consistent with CBO’s baseline revenue projections. Finally, it requires that we impose CBO’s projections of certain key economic variables. Those variables include the unemployment rate, the 3-month Treasury bill rate, and the 10-year Treasury note rate.

The 3-month Treasury bill rate is also used to set the Federal funds rate. The GI control forecast includes a projection of the Federal funds rate that differs from what CBO describes as the consensus of financial market participants. We correct for this by imposing a target for the Federal funds rate that is broadly consistent with not only CBO’s description of financial market consensus but also CBO’s projection of the 3-month Treasury bill rate. We obtain this target by first calculating the spread in the control forecast between the 3-month Treasury bill rate and the Federal funds rate. We then apply this spread, with some adjustments, to CBO’s projection of the 3-month Treasury bill rate.

We complete the first step by setting price levels for all components of GDP. CBO publishes 10-year projections of year-over-year percentage changes in an aggregate GDP price index. We use this along with information about the components of the GDP price deflator contained in the GI control forecast to set all underlying GDP price indices so that they are consistent with CBO’s projection of GDP inflation.

Setting price levels early in the calibration procedure is critical. This is because many exogenous Federal outlays variables in the Global Insight model are in real (inflation-adjusted) terms. We therefore require a price level variable to convert CBO’s nominal baseline budgetary projections for those variables into consistent real targets.