Building the Capacity of Monetary Authorities to Forecast Inflation

Nairobi, Tuesday, March 19, 2019: With a number of countries in the COMESA region gradually moving to inflation targeting monetary policy framework, the need to upgrade the skills of monetary authorities to forecast inflation with a high degree of accuracy becoming critical.

Contemporary monetary policy formulation requires information and forecasts on the interaction between sectors and variables in the economy which can be better understood through Dynamic Stochastic General Equilibrium (DSGE) Model which have richer micro-foundation that captures economic relationships than other comparable models.

DSG model is a method in macroeconomics that attempts to explain economic experiences, such as economic growth and business cycles and the effects of economic policy through econometric models based on applied general equilibrium theory and microeconomic principles.

Based on the instruction by the 39th Meeting of the Bureau of the COMESA Committee of Governors of Central Banks that was held on 4th December 2018 in Djibouti, the COMESA Monetary Institute (CMI) organized a training titled “DSGE Modelling and Time Series Analysis” from 4th – 8th March 2019 Nairobi, Kenya.

The objectives of the training were to enhance the capacity for monetary policy formulation and implementation using DSGE models in member Central Banks. It was also intended to enable COMESA Monetary Institute (CMI) to fulfill its mandate of monetary policy coordination at a regional level, which is a prerequisite for higher degree of monetary integration.

Delegates from nine Central Banks of COMESA Member States namely: Burundi, D R Congo, Egypt, Eswatini, Kenya, Mauritius, Uganda, Zambia, and Zimbabwe attended the training.

Addressing the delegates, the Director of the CMI, Mr. Ibrahim Zeidy, emphasized the importance of the DSGE model as a toolkit for designing appropriate monetary policy.

“The results obtained from DSGE modeling can be easily interpreted since they take into account consumers’ and firms’ behavior,” he said. “The training will therefore help Member States share knowledge and network on issues related with macroeconomic modelling and forecasting.”

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