Simple but Effective: The OeNB’s Forecasting Model for Selected CESEE Countries

This paper describes the new forecasting tool used by the Oesterreichische Nationalbank (OeNB) to derive near-term forecasts for GDP and imports for five Central, Eastern and Southeastern European (CESEE) countries, namely Bulgaria, Croatia, the Czech Republic, Hungary and Poland. An error correction (EC) model is estimated separately for each country by means of seemingly unrelated regressions. Each country-specific macromodel consists of six structural cointegration relationships that model private consumption, investment, exports, imports, the nominal exchange rate and the nominal interest rate using an augmented Taylor rule. Using quarterly data as of the first quarter of 1995, we produce forecasts for GDP and imports with this model. Notwithstanding the dynamic nature of the transition process as well as the limited availability and, in some cases, quality of data, our structural model for the CESEE countries performs fairly well and we expect further gains in forecasting accuracy as more data become available and their quality improves.