Forecasting Regional Indicators Based on the Quarterly Projection Model

Abstract

The paper presents a semi-structural model of a regional economy based on the standard version of the neo-Keynesian model in gaps. The main feature of this tool is its ability to predict regional indicators and model the regional heterogeneity of the national economy. In our model, Russia is divided into two macro-regions: the Central Federal District and the rest of Russia in aggregate. These regions are modelled separately but are interrelated. The benefit of this approach is that it allows us to analyse how shocks in one region are passed along to others, how the regions react to general shocks and what the appropriate monetary policy response should be. The model represents a simple and convenient tool for building macroeconomically consistent forecasts and generating recommendations in the area of monetary policy based on regional specifics.