Macroeconomic model

• The series features commentary and perspectives provided by professionals and educators that have significant expertise in building forecasting models based on economic modeling and analytics.
• "By bringing together these thought leaders, we are providing a source of truth that will help business executives navigate and plan for their company's post-COVID reality," said Rich Wagner, CEO of Prevedere.
• The economic downturn caused by the pandemic has proven that proper forecasting and business planning are essential to the health of any business when unexpected situations arise.
• Our predictive economic intelligence offering helps executives see what lies ahead for their business and solve for upcoming risks and opportunities.

• The move will enable the industry to more accurately analyze loans in forbearance as a result of COVID-19.
• RiskSpan's Edge platform brings transparency to investors by aggregating data across multiple market sources and offering a suite of predictive models and forecasting tools.
• Intex Solutions is the world's leading provider of structured finance cashflow models and analytics.
• The combination of Intex collateral data with RiskSpan's modeling and scenario tools allows mutual RiskSpan and Intex clients to easily run portfolio cashflows under a range of scenarios critical in times of economic uncertainty.

• AUSTIN, Texas, July 24, 2020 /PRNewswire-PRWeb/ -- Qvinci Software has released its second generation of its wildly popular What If forecasting and modeling tool.
• This new solution with Qvinci's new Model Merge Technology is the mostrobust forecasting solution for accountants, franchises, diocesesand SMBs giving you the ability to define your future and monitor the progress.
• What can be more relevant today!
• To introduce this game-changing technology, Qvinci has a live webinar scheduled for Wednesday July 29, 2020at 12:00pm CT with its storied inventor, serial entrepreneur and renowned turnaround expert Charles Nagel, Founder and CIO of Qvinci.

• By Danilo Leiva-Leon, Gabriel Perez-Quiros and Eyno Rots[1] The Global Weakness Index (GWI) is a real-time measure of how weak the global economy is.
• We use this index to assess on the spot how the repercussions of the coronavirus (COVID-19) crisis are playing out.
• After the release of certain soft indicators on 2 March 2020 the GWI increased sharply much faster than in the 2008 crisis.

Introduction

• In order to solve this problem, various researchers have developed non-linear models based on several timely indicators.
• Unlike many other models, the Markov-switching dynamic factor (MSDF) models introduced by Chauvet (1998) have been successfully used to account for co-movements and non-linearities across several economic indicators.
• In MSDF models, the economy is assumed to switch between expansions and recessions with constant probabilities.
• Expansions and recessions are respectively characterised by high and low growth rates of the various activity indicators.
• This is especially important in the deep COVID-19 recession that we are currently experiencing.

Data, sample and technical features of the models

An MSDF with recessions of varying depth is estimated independently for twelve of the largest economic regions of the world, which together account for more than seventy percent of world GDP. Six are advanced and six are emerging economies: Table A
• All of these variables are monthly.
• In addition, the models contain GDP as a quarterly variable.
• Whatever is its origin, as long as there is an effect on the economy, the effect will be reflected in these variables.
• For every economy, both the probabilities of recessions and the depth of every recession are endogenously estimated.

Global Weakness Index

• The information contained in Chart 1 can be summarised in an index the Global Weakness Index (GWI).
• It is a weighted average of the probabilities of recession in different economies[4].
• The index can be interpreted as the proportion of the world economy that is currently in recession.
• Chart 2 Global Weakness Index
• Given that the index is computed as a weighted average of the individual economies, it can be broken down by the individual contributors.
• Each economys contribution depends on the weight of that economy in world GDP and the probability of that economy being in a recession.
• It shows that, at the beginning of March, only China was clearly in a recession, but recently the United States and the euro area have also been large contributors to the high level of the index.


All in all, the GWI as an indicator has four key benefits. It is (i) updatable in real time; (ii) broken down by regional contributions; (iii) useful for quantifying risks; and (iv) simple to interpret.

Extensions

Our model includes GDP as one of its indicators, so it can be used to provide forecasts for GDP. As a matter of fact, computing the probability of negative growth or two quarters of negative growth, i.e. the probability of a recession according to its classical definition, is quite straightforward. In the case of the euro area, the latest figures suggest that the probability of a classical recession has reached 100%.

Conclusions

• The indicator is based on the estimation of a dynamic non-linear factor model for individual economies which considers recessions of different depths.
• Leiva-Leon et al (2020) show the excellent real-time forecasting properties of this model for individual economies.
• As this article illustrates, the indicator already pointed to clear signs of economic weakness as early as 2 March 2020.
• This weakness was confirmed by official statistics on 4 May 2020, when Q1 GDP data for most countries were released.

References