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CPB Role and position and our take on the crisis Mark Roscam Abbing Content CPB in headlines Independency is crucial Our role during the crisis Our take on the crisis ‘Stylized facts’ about CPB Founded in 1945 (by Tinbergen) ± 150 employees (100 economists)

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Presentation Transcript
  • CPB in headlines
  • Independency is crucial
  • Our role during the crisis
  • Our take on the crisis
stylized facts about cpb
‘Stylized facts’ about CPB
  • Founded in 1945 (by Tinbergen)
  • ± 150 employees (100 economists)
  • Formally part of Ministry of Economic Affairs ......
  • .... though completely independent
  • Legal basis for making forecasts
illustrations of cpb s unique position
Illustrations of CPB’s unique position
  • All political parties ask CPB to analyse the economic effects of their election programmes (results are published before election)
  • Consensus about taking CPB’s short-term forecast as basis for:

1) Budget Proposal 2) Wage negotiations

central planning bureau
Central Planning Bureau?
  • No planning in strict sense
  • Independent analyses relevant for economic policy
  • Official name: CPB Netherlands Bureau for Economic Policy Analysis
  • Customers:
    • Government, ministries
    • Parliament, political parties
    • Trade unions, employers’ associations
    • Public debate
tasks of cpb
Tasks of CPB
  • Short-term economic forecasting

(4 times a year)

  • Medium- and long-term economic scenarios
  • Economic analysis of policy proposals (short-term & long-term, CBA)
  • Economic research (policy relevant)
position of cpb
Position of CPB
  • Part of Ministry of Economic Affairs
    • Budget, personnel policy
    • Outside requests need Minister’s approval
    • Insight in confidential reports and plans
  • No political interference with models, methods and analyses
  • No paid assignments from third parties

(all publications free of charge)

most gdp forecasts are biased
Most GDP forecasts are biased
  • EC (2004) analysed forecasting errors of GDP growth in EU countries (Econ. Papers No 210)
  • Conclusion: optimism bias GDP growth projections used in budgetary process => negative effect on fiscal performance
  • Reason: Ministries have incentives to paint a rosy picture (they appear successful; downplaying unpopular measures)
independent forecasts
Independent forecasts?
  • 3 countries with ‘unbiased’ GDP growth forecasts: Netherlands, Belgium, Austria
  • In these 3 countries independent institutes, in other countries forecasts made by ministries
  • Advice: forecasting in budgetary process done by independent authority
budget plan and cpb forecast
Budget Plan and CPB forecast
  • Budget Plan always published on 3rd Tuesday in September
  • CPB’s short-term forecast published on same day
  • CPB’s economic forecast includes Budget Plan; Budget Plan includes CPB’s economic forecast
  • Only possible for forecast institute that is part of government – we have inside information
headlines of budget process
Headlines of Budget process

prel. budget plan

MoF (May)

macro forecast

budget forecast

CPB (June)

adapted budget plan

MoF (Aug)

final macro forecast

final budget forecast

CPB (Sept)

final budget

MoF (Sept)

extensive contact with line ministries
Extensive contact with line ministries
  • We make our own judgement with regard to impact and feasibility of proposed policies
  • Sometimes differences with MinFin’s figures
  • But these can always be explained!
  • We sometimes show policy breaches fiscal rules – and we say so!
ideal position of forecasting authority
Ideal position of forecasting authority

Independent Ministry



Public sector unbiased biased

confidential info confidential info


Private sector unbiased n.a.

no confidential



how to remain independent
How to remain independent?
  • Scientific basis
  • Total transparancy(results, assumptions, instruments)
  • No revenues from clients
  • Organise your own criticism (national and international visitations)
  • Large risk of harming good reputation (organise internal checks and balances)
analysis of election platforms process
Analysis of election platforms:process
  • Financial appendix of election platforms
  • Further details provided by representatives political parties
  • Interim report by CPB on feasibility and ex-ante effect government budget
  • Interim report by CPB on macroeconomic effects and purchasing power
  • Adjustment of plans by political parties
  • Report in concept to political parties for final check of own chapter
  • Final CPB report about all election platforms
analysis of election platforms instruments
Analysis of election platforms:instruments
  • Data base with policy measures
    • Changes with respect to base scenarios
    • Ex-ante effect on government budget
    • Code for link with macroeconomic model
  • Labour market model (MIMIC)
    • Effect on labour supply, equilibrium unemployment
  • Macroeconomic model (SAFFIER)
    • Effect on output, labour demand, prices, wages
  • Model for taxes, social security and purchasing power (MIMOSI)
  • Common sense of 20 economists during 3 months
analysis of election platforms overview of report
Analysis of election platforms: overview of report
  • Effect on macroeconomic development
    • GDP growth, employment, wages, prices
  • Effect on purchasing power
    • Scatter diagrams
  • Effect on public finance
    • EMU balance in end year
    • Sustainability of public finances in long run (ageing)
  • Other topics
    • Environment and infrastructure
    • Knowledge policy
    • Health care
report shows trade offs no pain no gain
Report shows trade-offs:no pain, no gain

Left Right

Economic growth (efficiency)

Income distribution (equity)

Public spending

Government budget





merits of analysis
Merits of analysis
  • Improves quality of proposals
    • Clarity about details of proposals
    • Check on costs and effectiveness of proposals
  • Improves quality of political debate
    • Less debate about assumptions or ‘facts’
    • More debate about political choices
  • Enhances informed choice by voter
    • Improves comparability of election platforms
      • same base scenario for medium term
      • uniform analysis and presentation of effects
  • Facilitates negotiating terms of coalition agreement
limitations of analysis
Limitations of analysis
  • Only policy measures of national government
    • No measures of EU, local government, unions
  • Emphasis on economic effects
  • Emphasis on medium-term effects
  • Effect of policy measures on labour supply, not on labour productivity
    • Better education and investment in infrastructure may enhance productivity growth
  • Uncertainty on quantitative effects
role cpb
Role CPB
  • Demand for our product (forecasts) has gone up
  • Quality (precision) has gone down….
  • Some things we cannot predict
  • But some we can
  • Constantly discuss policy with gov’t
a perfect storm
A perfect storm
  • Large global imbalances
  • Low interest rates and risk perception, mainly in US
  • Financial innovation, lagging supervision
  • Housing and stock bubbles
  • Bubbles burst:

→ Bank capital hit hard

→ Credit supply falls much more


global imbalances
Global imbalances
  • China and oil exporting countries (and NL!):
    • Large savings
      • China: no social security, state pensions
      • Oil producers: large windfalls
      • NL: mandatory savings, ageing, memento mori
  • US: consumption and investment
      • Underestimate risk
      • Greenspan keeps interest rate low
      • Rising house and asset prices
      • All stimulate consumption
financial innovation lagging supervision
Financial innovation, lagging supervision
  • Subprime mortgages
    • For low income borrowers
    • Only sustainable when houseprices keep rising
  • Securitised debt – cut up and pass on risk
    • Avoid regulation, off-balance vehicles
  • Failing risk management at banks
    • Spread the risk = inadequate monitoring
  • Lenient rating agencies
    • Conflict of interest and lagging skills
  • Lagging supervision
    • Rely on self-regulation
bubble in us housing market really
Bubble in US housing market? Really?

Source: Robert J Shiller, Irrational exuberance


15 september 2008 lehman starts a new phase
15 september 2008: Lehman starts a new phase

Risk-premium corporate bonds


consequences of a credit crisis can be substantial average previous crises
Consequences of a credit crisis can be substantial (average previous crises)
  • Time between peak and through
    • Income per head: 1.9 year
    • Unemployment rate: 4.8 year
  • Total change peak to through:
    • Income per head − 9%
    • Unemployment rate +7%-point Source: Reinhart & Rogoff (januari 2009)


risks for public finances
Risks for public finances
  • Debt increases as % GDP:
    • Financial sector support
    • High deficits (instead of expected surpluses)
    • Lower GDP (denominator)
  • Increased risk due to guarantees
  • Structural problem
    • Expenditure higher as % of GDP
    • GDP on a structurally lower path


  • Demand-side, different from earlier crises
  • Crisis will cost several years of growth
  • Hits vulnerable groups on labor market
  • …and wealth (incl. pension funds!)
  • Long term damage to public finances


conclusions ii
Conclusions II
  • Best economists in the world differ on:
    • Cause of the crisis (micro vs. macro)
    • Monetary policy (risks of inflation vs deflation
    • Fiscal policy (effectiveness now vs risks to sustainability)
  • On all three issues, we sit in the middle (or on the fence)
policy international short term
Policy: international, short term
  • Fiscal policy: strong international spillovers
  • Prevent protectionism
  • Save financial system
  • What is the consequence of increasing interest rate spreads within E(M)U?


policy internation long term
Policy: internation, long term
  • Address macro imbalances
  • Pop speculative bubbles
  • New architecture financial sector (and supervision)