Shock transmission models
Vector autoregressions and local projections estimate how commodity, financial and demand shocks affect output, inflation and public finances over time.
GCRI · Economic Development
Econometrics for development
Econometrics estimates economic relationships from data. In this field it measures how shocks transmit, how policies affect outcomes and how variables move together over time, with uncertainty and model assumptions stated.
01Register
Econometrics for development on the record.
Method recordSTEM method
- MethodEconometrics
- StewardEconomic Development
- Applied inEconomic Development
- Data3 inputs
- Checks3 validation steps
- Canonical pageSTEM Commons
02Application
What econometrics does here.
Econometrics applies statistical methods to economic data to estimate relationships, test theories and forecast. It provides empirical evidence on how shocks and policies affect economic outcomes. In economic development and development finance, econometric evidence estimates how disasters, pandemics and financial shocks affect output, employment and prices. It informs the economic case for risk reduction. The canonical description is on the STEM Commons.
Panel analysis across countries
Panel methods compare countries over time to estimate relationships while controlling for fixed differences between them.
Nowcasting with alternative data
Night lights, mobile data and other high-frequency indicators are combined with published statistics to estimate current activity where data are lagged.
03Simulator
Stocks, flows, delays and a tipping threshold.
Two stocks, pressure and adaptive capacity, joined by a reinforcing growth loop, a delayed balancing response and damage when pressure outruns capacity; past the threshold the system can tip. Teaching model with stated illustrative values, not a prediction.
Controls
- Growth of pressure
- 6.0% a year
- Efficacy of capacity in reducing pressure
- 4.0% a year
- Investment response to perceived pressure
- 20%
- Perception delay
- 4.0 years
- Tipping threshold of pressure
- 60 index
- Amplification past the threshold
- 2.0 times
- Years simulated
- 50 years
Readouts
- Peak pressure
- 113 index
- Capacity at the end
- 186 index
- Years over the threshold
- 15.8 years
Numbers, methods and sources
| Year | Pressure | Capacity | Perceived |
|---|---|---|---|
| 0 | 20.0 | 50.0 | 20.0 |
| 4 | 23.3 | 44.9 | 21.2 |
| 8 | 27.2 | 42.2 | 24.0 |
| 12 | 31.7 | 42.3 | 27.7 |
| 16 | 36.8 | 45.5 | 32.2 |
| 20 | 42.3 | 51.5 | 37.2 |
| 24 | 47.9 | 60.3 | 42.6 |
| 28 | 53.2 | 71.3 | 48.0 |
| 32 | 57.8 | 84.3 | 53.1 |
| 36 | 66.4 | 98.4 | 58.4 |
| 40 | 82.7 | 115.9 | 69.7 |
| 44 | 97.8 | 139.7 | 83.8 |
| 48 | 109.1 | 169.4 | 97.3 |
Methods
- System dynamics Forrester (1961), Industrial Dynamics, MIT Press; Sterman (2000), Business Dynamics
- Critical transitions and tipping points Scheffer and others (2009), Early-warning signals for critical transitions, Nature 461
- Causal loop diagram Sterman (2000), Business Dynamics, McGraw-Hill
- Uncertainty fan (parameter Monte Carlo) Spiegelhalter, Pearson and Short (2011), Visualising uncertainty about the future, Science 333
- One-at-a-time sensitivity (tornado) Saltelli and others (2008), Global Sensitivity Analysis: The Primer, Wiley
Data
No observed data enters this model: it runs on the teaching values set by the controls, to be replaced with a programme’s own evidence.
Across the six pillars, led by Nexus Consortium
- Experiments Labs
- Built in Economic Development in Foundry
- Tested at Economic Development in Universe
- Codified in Finance, Insurance and the Economy in Standards
- Published in Economic Development in Reports
- Taught in Faculty of Finance and Economics in Academy
04Data
What the method consumes.
Datasets and records used by econometrics on this platform, with the role each plays and the label its values carry. Sources are listed in the source register.
| Data | Role | Label |
|---|---|---|
| Macroeconomic time series | Transmission | Published statistics |
| Cross-country panels | Comparison | Published statistics |
| High-frequency proxies | Nowcasting | OBSERVED |
05Methods and evidence
How econometrics for development is modelled, measured and tested.
The model, its assumptions, its data and its uncertainty, in the form a scientist or engineer would check. Structures follow published methods. The values drawn are illustrative, not findings.
Sensitivity analysis
Which inputs move the result for econometrics for development most, one at a time across their stated ranges.
FAIR guiding principles · GO FAIR and FORCE11W3C PROV · World Wide Web ConsortiumGuidance on consistent treatment of uncertainties · IPCCCEOS Analysis Ready Data · Committee on Earth Observation Satellites
06Validation
How results are checked.
Models are assessed through specification tests, robustness checks and out-of-sample performance. Results are compared across datasets and methods.
| Check | How it is done |
|---|---|
| Specification robustness | Results are tested across model specifications and samples |
| Out-of-sample evaluation | Nowcasts are evaluated against later published data |
| Diagnostic tests | Models are tested for autocorrelation, stability and other assumptions |
Endogeneity, measurement error and structural change can bias estimates. Relationships may shift under extreme conditions.
08Stewardship
Who maintains the method.
Economic Development stewards econometrics for the Consortium and reviews how it is applied across platforms.
09Questions
Questions and answers.
What are the limits of econometrics in this field?
Endogeneity, measurement error and structural change can bias estimates. Relationships may shift under extreme conditions.
How are results checked?
Models are assessed through specification tests, robustness checks and out-of-sample performance. Results are compared across datasets and methods.
Are the values on this page real?
The data names, roles and checks are real descriptions of practice. The canvas shows a design of the method’s use, not a run; no result is reported here.
Where else is this method applied?
The canonical method page lists every platform that applies it.
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GCRIEconomic DevelopmentCountry Systems Risk and ResilienceGlobal Systems Risk and Resilience
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