EPPD-MOFED Macro Model (EMM)

From the introduction to Paper 4 to the Ethiopian EPPD-MOFED Macroabc MODEL (EMM) by Ato Getachew Adem, Director of the Economic Policy and Planning Department (EPPD) of the Ethiopian Ministry of Finance and Economic Development (MOFED):

Given the Government's overriding objective of reducing poverty through enhancing faster and broad-based growth, introducing tools that help systematically manage the economy aimed at efficiently utilizing available resources has become a primary focus of Ethiopia's Ministry of Finance and Economic Development (MOFED). In the light of this, it launched a package of macroeconomic study entitled Long-term Strategy and Sources of Growth Analysis and Short-term Macro econometric Building exercise . These two studies being interrelated are to be conducted in tandem where the Center for Development Policy Research (CDPR) of the School of Oriental and African studies (SOAS) is responsible for the former and the Micromacro Consultants (MMC) for the latter. Dr. Alemayehu Geda of the Economics Department of Addis Ababa University is to coordinate the research project on behalf of the consulting firms.

Some six months have passed since the Macro-econometric Model Building Exercise has been launched by the Economic Policy and Planning Department (EPPD) of the Ministry of Finance and Economic Development (MOFED) in collaboration with the Micro Macro Consultants (MMC) based in the Netherlands, The Hague. Dr. Alemayehu Geda of the Economics Department of the Addis Ababa University leads the core technical team of the modelling Project set up by the EPPD of MOFED. The core technical team also interacts through Tele work with MMC specialists. Besides, the core team has also visited the MMC and has benefited from discussions and expert opinions of various specialists invited by MMC from the Central Planning Bureau (CPB) and other institutes of the Netherlands. The Director of the EPPD Mr. Getachew Adem has visited the MMC head quarter for the first time during the end of April 2003. The visit helped shape the course of the modelling exercise.

The modelling exercise has passed through several phases of development. The period from April to June 2003 was devoted to data compilation, consistency check among macroeconomic data sets, and enhancing the theoretical understanding of the study team through the conduct of training on macro theory by specialists of MMC, Addis Ababa university, and KIPPRA(*). The visit by the core study team to the MMC following the second week of July 2003 has helped upgrade the modelling exercise to a pilot version and a number of equations on key macroeconomic variables have been estimated by the core team through the supervision of Dr. Alemayehu Geda. Calibrations on the model have also been conducted.

This second visit by the Director of EPPD Mr. Getachew Adem was primarily meant to hold discussions with MMC specialists and there by rationalize the various coefficients of the estimated equations and improve up on the calibrations. Data gaps on prices and wages, lack of desegregated statistics on national accounts (Private versus public investment), lack of nominal values on the supply side of the national accounts (since 1993/94) and other limitations on the data side has been the major difficulties encountered while conducting the modelling exercise. The modelling exercise, among others, has also helped identify the various data gaps that need to be bridged in the future.

Notwithstanding the aforementioned data limitations, the Model has now reached an operational stage at least at Macro level. Variants could now be run to undertake policy simulations and forecasting for internal purposes. The theory is being reviewed currently to undertake the modelling exercise at sector level. modelling exercise at sector level will be conducted while fine-tuning and strengthening the modelling work at macro level. Still more effort needs to be made by way of strengthening and firming up the modelling work (particularly improving on the data front) while at the same time securing expert opinions on the variants of the model.

This second visit by the Director of EPPD has culminated with discussions and rationalization of next steps with the Director of MMC. The forthcoming activities have been charted out and the need for still fine-tuning and firming up the EPPD-MOFED Macroeconomic Model and commencing the sector model has been the center of emphasis. The need for initiating internal discussions with primary stakeholders (key federal macro institutions) on the workings of the macro model has been emphasized. The upcoming visit by the Director of MMC Dr. Marein Van Schaaijk to Addis Ababa from October 6 to 12, 2003 would help concretize and shape the steps forward.

Getachew Adem, October 4, 2003

(*) KIPPRA is the institute in Kenya that with support of Micromacro Consultant has developed the Kenyan Macroabc model, called KTMM