Appendix A: key forecast assumptions.

Holland, Dawn ; Barrell, Ray ; Delannoy, Aurelie 等

The forecasts for the world and the UK economy reported in this Review are produced using NIESR's model, NiGEM. The NiGEM model has been in use at the National Institute for forecasting and policy analysis since 1987, and is also used by a group of about 50 model subscribers, mainly in the policy community. Most countries in the OECD (1) are modelled separately, and there are also separate models of China, India, Russia, Hong Kong, Taiwan, Brazil, South Africa, Estonia, Latvia, Lithuania, Slovenia, Romania and Bulgaria. The rest of the world is modelled through regional blocks so that the model is global in scope. All models contain the determinants of domestic demand, export and import volumes, prices, current accounts and net assets. Output is tied down in the long run by factor inputs and technical progress interacting through production functions, but is driven by demand in the short- to medium-term. Economies are linked through trade, competitiveness and financial markets and are fully simultaneous. Further details on the NiGEM model are available on http://nimodel.niesr.ac.uk/.

There are a number of key assumptions underlying our current forecast. The interest rates and exchange rate assumptions are shown in tables A1-A2. Our short-term interest rate assumptions are generally based on current financial market expectations, as implied by the rates of return on treasury yields of different maturities. Longterm interest rate assumptions are consistent with forward estimates of short-term interest rates, allowing for a country-specific term premium in the Euro Area. We have assumed short-term interest rates begin to rise in the second quarter of 2011 in the Euro Area, the US, and in the UK. In Japan, deteriorating economic prospects, notably the strong appreciation of the yen and a return to deflation, recently led the Bank to cut its key interest rate, which now ranges between zero and 0.1 per cent and is expected to remain low. On the other hand, emerging economies are fighting against strong inflation, notably due to raising prices of food and oil. In a context of tightening monetary policy, the People's Bank of China raised the benchmark interest rate twice over the past quarter, both times by 25 basis points, from 5.31 per cent in October 2010 to 5.81 per cent in January 2011. Australia, Brazil, Canada, India, Korea, Norway, Poland and Sweden have also started to normalise the monetary policy stance and raise interest rates, whilst Turkey has chosen the opposite strategy, cutting its rates to limit the inflow of speculative investments.

[FIGURE A1 OMITTED]

Figure A1 illustrates our projections for real long-term interest rates in the US, Euro Area, Japan and Canada. Long real rates followed nominal rates to a recent low in August 2010, but have since recovered. The monetary stance will remain expansionary until 2013-14, when real interest rates in North America are expected to stabilise close to historical levels. A somewhat higher level in the Euro Area reflects the risk premium on sovereign debt in Greece, Ireland, Spain and Portugal. We see real interest rates in Japan stabilising around a level rather below international rates of return.

Long real rates are illustrative measures of the state of the economy, but do not reflect the actual borrowing costs faced by firms, which pay a premium above the risk-free rates to reflect the risk of default. Figure A2 illustrates the spread between corporate bond yields and 10-year government bond yields in the US, UK and Euro Area. Following the collapse of Lehman Brothers in September 2008, corporate spreads jumped to their highest level since the Great Depression. After falling to recent lows in April 2010, spreads seem to have stabilised, maintaining nonetheless a positive margin over the low levels seen in 2000-2006.

[FIGURE A2 OMITTED]

Nominal exchange rates against the US dollar are generally assumed to remain constant at the prevailing rate in mid-January 2011 in the short term, that is, until the end of September 2011. After that, they follow a backward-looking uncovered-interest parity condition, based on interest rate differentials relative to the US. Figure A3 illustrates the effective exchange rates in the US, Euro Area, Japan, Canada and the UK. The US dollar has weakened relative to other currencies since mid-2010, reflecting the looser monetary policy stance as emerging market economies began to withdraw their monetary stimulus. The yen has appreciated by a cumulative 42 per cent since 2007, with sharp rises of 6.7 and 1.6 per cent in the third and fourth quarters of 2010 that prompted intervention by the Bank of Japan. Meanwhile, the euro remains broadly in line with precrisis levels. Sterling has lost nearly 20 per cent of its value since the end of 2007, but has been broadly stable since late 2009. The Canadian dollar tends to follow the oil price closely, and increased in line with the oil price over the course of 2009 and appreciated further towards the end of 2010 in line with the recent rise in the oil price.

[FIGURE A3 OMITTED]

Our oil price assumptions for the short term are based on those of the US Energy Information Administration, who use information from forward markets as well as an evaluation of supply conditions. In the longer term, we assume that real oil prices will rise in line with the real interest rate. The oil price assumptions underlying our current forecast are reported in figure A4 and in table 1 at the beginning of this chapter. Oil prices averaged $78.9 per barrel in 2010, based on the average of Brent and Dubai spot prices. After stabilising at a price range of $75-$80 per barrel in the last quarter of 2009, oil prices suddenly rose in the last quarter of 2010, reaching over $98 per barrel in the second week of January 2010. Levels above $100 per barrel have not been seen since the summer of 2008 but are expected to be reached by the end of 2011.

Our equity price assumptions for the US reflect the return on capital. Other equity markets are assumed to move in line with the US market, but are adjusted for different exchange rate movements and shifts in country-specific equity risk premia. Figure A5 illustrates the equity price assumptions underlying our current forecast. After a slight downturn in the third quarter, share prices rebounded in the last quarter of 2010. Share prices in Canada have now regained their pre-crisis peak, whilst those in the US and Germany are expected to remain below, by around 20 and 35 per cent, respectively. Share prices in Japan have declined relative to the other major economies.

[FIGURE A4 OMITTED]

[FIGURE A5 OMITTED]

Fiscal policy assumptions for 2009-11 follow announced policies. Average personal sector tax rates and effective corporate tax rate assumptions underlying the projections are reported in table A3. Government revenue as a share of GDP reported in the table reflects these tax rate assumptions and our forecast projections for income and profits, as well as our projections for consumption tax revenue. Consumption tax revenue projections also reflect indirect tax cuts in Germany and Ireland in 2010 and indirect tax rate rises in the UK, Greece, Portugal, Spain, Italy and Finland in 2010 and France and Italy in 2011.

As part of the fiscal stimulus programmes, income tax cuts were introduced in 2010 in most countries, while income tax rates rose in Denmark, Portugal and Greece. Tax revenue as a share of GDP is expected to rise in many countries (except Canada, Denmark, Italy, the Netherlands, Finland and Sweden) between 2010 and 2011, reflecting both the recovery in growth and the lifting of certain temporary tax cut measures in countries such as France and Germany. Government spending as a percentage of GDP is expected to start falling this year in all countries with the exception of Greece. From 2012, we assume fiscal consolidation proceeds as currently planned in all the major economies.

DOI: 10.1177/0027950111401134

NOTE

(1) With the exceptions of Iceland, Luxembourg, Turkey and Chile.

Table A1. Interest rates
Per cent per annum

 Central bank intervention rates

 US Canada Japan Euro Area UK

2008 2.09 3.04 0.46 3.90 4.68
2009 0.25 0.44 0.10 1.28 0.65
2010 0.25 0.59 0.10 1.00 0.50
2011 0.39 1.44 0.13 1.32 0.78
2012 0.91 2.29 0.23 2.24 1.79
2013 1.64 2.76 0.33 3.04 2.70

2014-18 3.57 3.80 1.03 4.56 3.90

2010 Q1 0.25 0.25 0.10 1.00 0.50
2010 Q2 0.25 0.34 0.10 1.00 0.50
2010 Q3 0.25 0.76 0.10 1.00 0.50
2010 Q4 0.25 1.00 0.10 1.00 0.50

2011 Q1 0.25 1.00 0.10 1.00 0.50
2011 Q2 0.31 1.36 0.12 1.16 0.66
2011 Q3 0.50 1.53 0.14 1.37 0.82
2011 Q4 0.51 1.87 0.17 1.75 1.14

2012 Q1 0.67 2.00 0.19 1.97 1.40
2012 Q2 0.83 2.24 0.22 2.15 1.66
2012 Q3 1.00 2.43 0.24 2.33 1.92
2012 Q4 1.16 2.50 0.27 2.50 2.18

2013 Q1 1.35 2.68 0.29 2.72 2.39
2013 Q2 1.55 2.75 0.32 2.93 2.60
2013 Q3 1.74 2.75 0.34 3.14 2.81
2013 Q4 1.94 2.87 0.37 3.36 3.02

 10-year government bond yields

 US Canada Japan Euro Area UK

2008 3.6 3.6 1.5 4.2 4.5
2009 3.2 3.2 1.3 3.7 3.7
2010 3.2 3.2 1.2 3.3 3.6
2011 3.5 3.4 1.2 4.0 3.8
2012 3.8 3.7 1.3 4.3 4.1
2013 4.2 4.0 1.5 4.6 4.4

2014-18 4.7 4.5 1.9 4.9 4.8

2010 Q1 3.7 3.5 1.3 3.5 4.1
2010 Q2 3.5 3.5 1.3 3.4 3.7
2010 Q3 2.8 3.0 1.0 3.1 3.2
2010 Q4 2.9 3.0 1.0 3.4 3.3

2011 Q1 3.4 3.2 1.2 3.8 3.6
2011 Q2 3.4 3.3 1.2 3.9 3.7
2011 Q3 3.5 3.4 1.2 4.0 3.8
2011 Q4 3.6 3.5 1.3 4.1 3.9

2012 Q1 3.7 3.6 1.3 4.2 4.0
2012 Q2 3.8 3.7 1.3 4.3 4.1
2012 Q3 3.9 3.7 1.4 4.4 4.2
2012 Q4 4.0 3.8 1.4 4.4 4.2

2013 Q1 4.0 3.9 1.4 4.5 4.3
2013 Q2 4.1 3.9 1.5 4.6 4.3
2013 Q3 4.2 4.0 1.5 4.6 4.4
2013 Q4 4.3 4.1 1.5 4.7 4.4

Table A2. Nominal exchange rates

 Percentage change in effective rate

 US Canada Japan Euro Area Germany France

2008 -1.9 -1.7 12.9 5.0 2.0 2.6
2009 7.0 -3.0 15.5 4.4 2.4 1.7
2010 -3.1 9.3 4.5 -6.2 -3.6 -2.9
2011 -2.5 3.2 4.0 -2.0 -1.3 -0.9
2012 1.0 -0.7 0.7 0.1 0.1 0.1
2013 1.2 -0.9 1.7 0.0 0.0 0.0

2010 Q1 1.1 3.8 -0.2 -4.3 -2.4 -2.2
2010 Q2 2.3 -0.6 -0.2 -5.5 -2.9 -2.8
2010 Q3 -1.2 0.1 6.7 -0.1 -0.2 0.0
2010 Q4 -2.8 1.1 1.6 2.5 1.1 1.3

2011 Q1 -0.5 2.6 -0.4 -2.4 -1.3 -1.1
2011 Q2 0.0 0.0 0.0 0.0 0.0 0.0
2011 Q3 0.0 0.0 0.0 0.0 0.0 0.0
2011 Q4 0.3 -0.2 0.1 0.1 0.0 0.0

2012 Q1 0.3 -0.2 0.3 0.0 0.0 0.0
2012 Q2 0.3 -0.2 0.4 0.0 0.0 0.0
2012 Q3 0.3 -0.2 0.0 0.0 0.0 0.0
2012 Q4 0.3 -0.3 0.4 0.0 0.0 0.0

2013 Q1 0.3 -0.2 0.5 0.0 0.0 0.0
2013 Q2 0.3 -0.2 0.5 0.0 0.0 0.0
2013 Q3 0.3 -0.2 0.6 0.0 0.0 0.0
2013 Q4 0.3 -0.2 0.6 0.0 0.0 0.0

 Percentage change
 in effective rate Bilateral rate per US $

 Italy UK Canadian $ Yen Euro Sterling

2008 2.5 -11.9 1.078 103.4 0.683 0.545
2009 2.4 -10.5 1.132 93.6 0.720 0.641
2010 -3.3 -0.2 1.027 87.8 0.755 0.647
2011 -0.9 1.4 0.988 82.8 0.754 0.631
2012 0.2 0.5 0.999 82.9 0.761 0.634
2013 0.1 0.2 1.012 82.4 0.771 0.640

2010 Q1 -2.5 -1.0 1.023 90.7 0.722 0.641
2010 Q2 -3.1 0.4 1.039 92.0 0.787 0.671
2010 Q3 0.1 2.6 1.033 85.8 0.775 0.645
2010 Q4 1.5 -1.7 1.013 82.6 0.737 0.633

2011 Q1 -1.3 1.3 0.988 82.7 0.754 0.631
2011 Q2 0.0 0.0 0.988 82.7 0.754 0.631
2011 Q3 0.0 0.0 0.988 82.7 0.754 0.631
2011 Q4 0.1 0.2 0.99 82.9 0.755 0.631

2012 Q1 0.0 0.2 0.994 82.9 0.757 0.632
2012 Q2 0.0 0.1 0.997 82.8 0.76 0.633
2012 Q3 0.0 0.1 1.000 83.0 0.762 0.635
2012 Q4 0.0 0.1 1.004 82.9 0.765 0.636

2013 Q1 0.0 0.0 1.007 82.7 0.767 0.638
2013 Q2 0.0 0.0 1.011 82.5 0.770 0.639
2013 Q3 0.0 0.0 1.014 82.2 0.773 0.641
2013 Q4 0.0 0.0 1.016 82.0 0.775 0.643

Table A3. Tax rate assumptions

 Average income tax rate Effective corporate tax rate
 (per cent) (a) (per cent)

 2010 2011 2012 2010 2011 2012

Australia 13.4 13.4 13.4 24.7 24.7 24.7
Austria 30.5 30.4 30.4 19.9 19.9 19.9
Belgium 32.3 32.5 33.0 24.5 24.5 24.5
Canada 21.0 22.0 22.0 23.8 24.3 25.1
Denmark 37.5 36.4 36.4 31.7 31.7 31.7
Finland 31.8 33.6 33.6 19.6 20.8 20.8
France 28.8 29.8 30.1 22.5 23.8 23.8
Germany 28.1 28.2 28.2 26.6 26.6 26.6
Greece 21.4 23.0 23.0 23.3 23.3 23.3
Ireland 20.2 20.2 20.2 10.3 10.3 10.3
Italy 28.8 28.1 28.0 26.2 26.6 27.0
Japan 21.8 21.8 21.8 26.9 27.2 27.6
Netherlands 32.2 31.4 31.4 20.0 20.3 20.3
Portugal 19.2 21.0 20.9 18.4 18.4 18.4
Spain 22.8 23.0 23.0 25.2 25.2 25.2
Sweden 31.1 31.1 31.1 17.9 18.1 18.4
UK 23.8 24.0 24.2 21.1 20.3 19.3
US 16.5 16.7 17.3 29.1 29.1 29.1

 Gov't revenue (% of GDP) (b)

 2010 2011 2012

Australia 30.9 31.6 31.8
Austria 39.0 39.6 40.0
Belgium 42.5 42.5 42.8
Canada 35.5 35.2 35.4
Denmark 42.0 40.7 40.3
Finland 44.0 43.5 42.7
France 42.4 44.2 44.9
Germany 41.2 41.5 41.7
Greece 30.6 36.2 37.3
Ireland 10.3 28.5 31.1
Italy 43.6 42.9 42.7
Japan 32.6 33.2 33.7
Netherlands 36.3 35.0 35.9
Portugal 38.7 41.2 41.4
Spain 31.9 32.3 32.5
Sweden 43.0 42.5 42.3
UK 37.6 37.8 38.0
US 26.9 27.5 28.9

Notes: (a) The average income tax rate is calculated as total income
tax plus both employee and employer social security contributions as a
share of personal income. (b) Revenue shares reflect NiGEM aggregates,
which may differ from official government figures.

Table A4. Government spending assumptions (a)

 Gov't spending excluding Gov't interest
 interest payments payments (% of GDP)

 2010 2011 2012 2010 2011 2012

Australia 32.6 32.5 32.0 1.8 1.9 2.0
Austria 40.6 40.3 40.4 2.6 2.6 2.6
Belgium 43.5 42.7 42.0 3.7 3.8 3.8
Canada 36.9 36.1 35.7 3.6 3.4 3.3
Denmark 43.9 42.3 41.4 2.1 2.1 2.2
Finland 46.1 44.0 43.1 1.4 1.4 1.4
France 47.6 47.6 47.4 2.5 2.6 2.8
Germany 42.4 41.4 40.8 2.8 3.0 3.0
Greece 33.4 33.9 32.6 6.7 9.8 12.2
Ireland 35.9 34.5 33.0 3.3 5.2 6.0
Italy 43.8 42.3 41.1 4.8 4.9 5.0
Japan 37.4 36.9 36.8 2.8 2.8 2.7
Netherlands 39.8 37.5 36.5 2.4 2.4 2.4
Portugal 43.5 43.3 42.2 3.2 4.0 4.6
Spain 40.1 36.4 34.8 2.1 2.6 2.9
Sweden 43.0 42.0 41.6 1.1 1.0 1.0
UK 41.2 40.0 38.8 3.0 3.3 3.4
US 34.7 34.1 32.9 2.7 2.8 2.9

 Deficit
 projected to
 fall below 3%
 of GDP

Australia 2011
Austria 2012
Belgium 2013
Canada 2014
Denmark 2014
Finland 2011
France 2015
Germany 2011
Greece 2018
Ireland 2016
Italy 2014
Japan --
Netherlands 2013
Portugal 2017
Spain 2016
Sweden 2009
UK 2016
US --

Note: (a) Expenditure shares reflect NiGEM aggregates, which may
differ from official government figures.