Forecasting the economy development based on a stochastic model of economic growth given a turning point

Abstract

The article notes the increasing influence of uncertainty and risk factors on the economic development in modern conditions. Some opportunities to consider this impact are connected with the use of stochastic models for economic growth. The authors study the methods of forecasting the economic development based on a discrete stochastic approximation for the constraints of the economic growth model using the Euler-Maruyama method. The proposed approach permits constructing the mean calculated economic growth trajectory starting from the current (initial) state. The method implementation in the simulation mode is presented with regard to the turning point induced by the 2008 global economic crisis. Special attention is drawn to the characteristic features of the proposed method and the problem of the economic growth stochastic model calibration. The calculations of GDP and consumption expenditure trajectories are performed according to the data for Greece, Denmark, and Spain in two time periods — before and aft er the 2008 crisis. The sets of model parameters are found that provide the compliance of the actual trajectories with 50% confidence intervals of calculated values of the macroeconomic indicators under consideration. It is shown that the use of the baseline data defined in fixed 1970 prices for the forecast calculations can increase the compliance. Refs 36. Figs 12. Tables 12.