The European Central Bank published an Occasional Paper by the European System of Central Banks Working Group on Forecasting that inventories the models and tools used across the ESCB to produce macroeconomic baseline projections. It describes how different model classes are combined with short-term forecasting tools and expert judgement, and it flags areas where more harmonised methods and reporting could make projections more transparent and comparable across central banks. The report draws on a questionnaire returned by 24 institutions, covering the ECB and 23 national central banks. Semi-structural models are the main workhorse for baseline projections at 18 institutions, while four national central banks use dynamic stochastic general equilibrium models, known as DSGE models, as their primary tool, supported by time series and specialised satellite models for inflation, GDP nowcasting, potential output, labour markets, housing, lending rates and public finances. All respondents use supporting models and 16 cross-check their baseline with additional models, while off-model information is typically incorporated by residual adjustments or add-factoring used by 14 institutions, exogenising selected variables used by 13 institutions, or a combination of both. Common ECB assumptions are central for euro area projections, but the treatment of fiscal and lending rate assumptions is less harmonised, and the report summarises approaches to data revisions and missing observations including splicing and inverting models to generate model-consistent series. On reporting, 18 institutions can decompose forecast revisions into contributions from new data, assumptions and other factors that can act as a proxy for judgement, but external reporting practices vary. The paper identifies “quick wins” including standardised reporting frameworks for assumptions and short-term outlook impacts and clearer approaches to defining model-consistent “neutral” residuals, and it notes that the Expert Group on the Model-Based Assessment of Projections is developing model-based indicators to quantify expert judgement with results to be detailed in a forthcoming working paper.
European Central Bank 2025-12-03
European Central Bank paper maps European System of Central Banks forecasting models and proposes quick wins to improve projection transparency
The European Central Bank published an Occasional Paper detailing models and tools used by the European System of Central Banks for macroeconomic baseline projections. It highlights semi-structural and dynamic stochastic general equilibrium models, suggesting harmonizing methods for transparency and comparability. It identifies opportunities for standardizing reporting frameworks and developing model-based indicators to quantify expert judgement.