Long-term macroeconometric models: The case of Poland

Long-term forecasts and scenario analysis should be based on macroeconometric models. The core of long-term models is extended by introducing production functions generating potential output. Their specification includes total factor productivity (TFP) being representative of technological progress. It depends on knowledge capital, i.e. human capital, domestic and foreign R&D. Several channels of transfer of foreign R&D can be distinguished.The potential output differs from the effective output, representing final demand, underlying business cycle fluctuations. To study potential disequilibria a system of equations explaining final demand must be established.Thus the long-term macroeconometric model must be a complete model. Its use may cover long-term forecasts and scenario analysis based on model simulations.The paper outlines the above specifications of the long-term model using as example a new model of the Polish economy. The model is medium-sized. It covers demand and supply side, including prices and financial flows. The results of multiplier analysis are shown revealing model feedbacks, including generation of business cycles. The results of its application are shown: long-term forecasts up to the year 2030 as well as scenarios of development of the Polish economy, including recession scenario.     

How to improve scenario analysis as a strategic management tool?

Scenarios are claimed to support strategic decision makers. They are especially effective in dealing with uncertainties. This paper addresses some drawbacks of the conventional scenario method, which is especially directed at handling these uncertainties, and indicates possible avenues for methodological adaptations. We take the approach, which rests in the Shell tradition, as exemplary for our discussion on the mainstream scenario methodology. This approach has some limitations when it comes to dealing with simultaneous trends and countertrends, and trends or clusters of trends that are not thought of beforehand, especially the methodological requirements of causality and consistency, which might be limiting factors in this respect. This paper indicates alternative ways for scenario construction. It discusses the use of either recombinant scenarios, context scenarios, or inconsistent scenarios and/or combinations of these scenarios. These options explicitly incorporate the notion of ‘paradoxical trend’ as the codriver of future developments into the methodology.     

Regional, national, and spatially explicit scenarios of demographic and economic change based on SRES

We report here spatially explicit scenario interpretations for population and economic activity (GDP) for the time period 1990 to 2100 based on three scenarios (A2, B1, and B2) from the IPCC Special Report on Emissions Scenarios (SRES). At the highest degree of spatial detail, the scenario indicators are calculated at a 0.5 by 0.5 degree resolution. All three scenarios follow the qualitative scenario characteristics, as outlined in the original SRES scenarios. Two scenarios (B1 and B2) also follow (with minor adjustments due to scenario improvements) the original SRES quantifications at the level of 4 and 11 world regions respectively. The quantification of the original SRES A2 scenario has been revised to reflect recent changing perceptions on the demographic outlook of world population growth. In this revised “high population growth” scenario, A2r world population reaches some 12 billion by 2100 (as opposed to some 15 billion in the original SRES A2 scenario) and is characterized by a “delayed fertility transition” that is also mirrored in a delayed (economic) development catch-up, resulting in an initially stagnating and subsequently only very slow reduction in income disparities. The spatially explicit scenario interpretation proceeds via two steps. Through a combination of decomposition and optimization methods, world regional scenario results are first disaggregated to the level of 185 countries. In a subsequent second step, national results are further disaggregated to a grid cell level, taking urbanization and regional (rural–urban) income disparities explicitly into account. A distinguishing feature of the spatially explicit scenario results reported here is that both methodologies, as well as numerical assumptions underlying the “downscaling” exercise, are scenario-dependent, leading to distinctly different spatial patterns of population and economic activities across the three scenarios examined.     

Combined forecast process: Combining scenario analysis with the technological substitution model

Forecasts can be improved by combining separate forecasts obtained by different methods. The complementary nature of the scenario analysis and technological substitution models means that combining the two can obtain improved forecasts. The former has the strength of dealing with the uncertain future, while the later offers data-based forecasts of quantifiable parameters. This study thus proposes a process for combining the scenario analysis with the technological substitution model for discussing new generation technological developments. The proposed process not only has the strengths of scenario analysis, but also contains features that scenario analysis lacks, including predicting annual developments for future years, considering old technology development, and forecasting substitution of old technologies. This study uses the forecast of the market share of Fiber to the x in Taiwan over the next ten years as an example illustrating the proposed combined forecast process.     

Combining participative backcasting and exploratory scenario development: Experiences from the SCENES project

Social, natural and cultural systems are changing rapidly, influencing the future of Europe's fresh waters. One of the drivers shaping this future is the implementation of the Water Framework Directive. Participatory scenario development is well-suited to the challenges posed by the WFD to develop a long-term view by involving stakeholders. In this paper we analyse the process and results of a series of stakeholder workshops to develop scenarios at pan-European level. Specifically, we aim at analysing the method and results of combining a backcasting methodology and exploratory scenario development process. Four exploratory scenarios (narrative storylines) were developed, in first instance based on a set of existing European scenarios. Results matched expectations; the process produced stories that are complex, integrated, and rich in detail. During the backcasting exercise, four timelines were constructed, each of which took one exploratory scenario as context. The backcasting process established a strong link with the exploratory scenarios by identifying a large number of obstacles and opportunities in the realisation of those timelines. An analysis across all backcasts yielded a list of 15 robust elements, i.e. elements that are potentially effective in all exploratory scenarios. A stakeholder questionnaire showed that overall there was a widespread satisfaction with both the process and the results. Stakeholders were satisfied with the overall methodology and the exploratory scenarios and somewhat more critical on the backcasting exercise and resulting robust strategies. Above all, we hope to have demonstrated that it is conceptually appealing, methodologically feasible, and practically useful to combine exploratory scenario development and backcasting analysis.     

On the impacts of carbon tax and technological progress on China

Using a dynamic national computable general equilibrium model, we investigate the impact of carbon tax and energy efficiency improvement on the economy and environment of China. The Chinese social account matrix is presented based upon the latest input–output table (2012 IO table) and other data. The business as usual (BAU) scenario is designed according to several forecasts about China by 2030, followed by six policy scenarios, including different levels of carbon tax and technological progress as well as their combinations. The results show that carbon tax will frustrate the overall economic growth slightly. The CO₂ emission will be 13.81% lower in 2030 compared to BAU case if the carbon tax scheme is carried out at a rate of 200 RMB/ton of CO₂. Technological progress will stimulate the economic growth, enrich the household and government income, increase total investment and make most sectors prosperous with the exception of energy industries.     

Linking scenarios across geographical scales in international environmental assessments

The development and analysis of scenarios or plausible futures has evolved to be a useful approach for dealing with uncertainty about future developments in a structured and integrated manner. Commonly, scenario exercises have focussed on processes at one specific geographic scale. Recently scenario-based approaches have also been used to address multi-scale processes or to link scenarios developed at various geographical scales with each other in order to better understand the interaction of processes across scales.The level of interconnectedness across scales will vary, and depends largely on the approaches used to develop multi-scale scenarios. We distinguish five levels of interconnectedness scenarios may display across scales: (a) Equivalent, (b) Consistent, (c) Coherent, (d) Comparable, and (e) Complementary. Furthermore, we describe five different types of coupled scenario development processes: (a) Joint, (b) Parallel, (c) Iterative, (d) Consecutive, and (e) Independent.Based on this nomenclature, the relationship between the level of interconnectedness of scenarios and the degree of coupling of scenario development processes across geographical scales is discussed. Which process is best suited and how much interconnectedness is needed, will depend both on the focal issue and the primary purpose of the scenario exercise, i.e. whether the aim is education, scientific exploration, or decision-support.     

Suspending disbelief: Influencing engagement in scenarios of forest futures

Scenario analysis is an approach to long-term planning that informs decision-making in contexts of highly uncertain future conditions. Scenario-based studies are rapidly growing in popularity, yet many aspects of the method are not fully understood. Participants' willingness to suspend disbelief in possible futures is an integral component of scenario-based studies, essential for considering alternative future scenarios, yet little is known about the factors that affect it. Participation in a scenario project does not necessarily imply willingness or ability to suspend disbelief; participants may not suspend disbelief simply upon request. However, the scenario literature says little about the aspects of scenario-based studies that influence suspension of disbelief.This article explores the factors that influenced the suspension of disbelief in one scenario exercise about the future of Canada's forests. Participants differed in their abilities to suspend disbelief in the scenarios in part because of their past experiences and expertise in particular areas, and their assessments of probable and desired future outcomes. Elements of the project design and implementation influenced participants' abilities to engage the scenarios. The results have implications for those interested in using scenarios for helping people and communities envision possible - and sustainable - futures.     

Sustainable energy prices and growth: Comparing macroeconomic and backcasting scenarios

How do results from the sustainability research world of backcasting relate to the macroeconomic scenarios used for policy evaluation and planning? The answer is that they don't, mostly — they come from different scientific traditions and are not used in the same contexts. Yet they often deal with the same issues. We believe that much can be gained by bringing the two systems of thinking together. This paper is a first attempt to do so, by making qualitative comparisons between different scenarios and highlighting benefits and limitations to each of them.Why are the pictures we get of the energy future so different if we use a macroeconomic model from when using a backcasting approach based on sustainable energy use? It is evident that the methods for producing those two kinds of scenarios differ a lot, but the main reason behind the different results are found in the starting points rather than in the methods. Baseline assumptions are quite different, as well as the interpretations and importance attached to signals about the future. In this paper, it is discussed how those two types of scenarios differ and how they approach issues such as energy prices and growth.The discussion is based on a comparison between Swedish economic and sustainability scenarios. The economic scenarios aim at being forecasts of the future and are used as decision support for long-term policies. But are the assumptions in the economic scenarios reasonable? The sustainability scenarios are explicitly normative backcasting scenarios. They do not take the issue of growth and consumption fully into account. Could they be developed in this respect? The comparison between the scenarios is also used to look closer at the issue of energy prices in a society with sustainable energy use. One of the questions raised is if a low energy society calls for high energy prices. Moreover, the effects of tradable permits versus energy taxes is analysed in the context of how energy use could be kept low in a growing economy.     

Integrated scenarios of energy-related CO2 emissions in Ireland: A multi-sectoral analysis to 2020

This paper presents future scenarios of Irish energy-related CO₂ emissions to 2020, using a combination of multi-sectoral decomposition analysis with scenario analysis. Alternative development paths, driving forces and sectoral contributions in different scenarios have been explored. The scenarios are quantified by using decomposition analysis as a Divisia Index SCenario GENerator (DISCGEN). The driving forces of population, economic and social development, energy resources and technology and governance and policies are discussed. A set of four integrated or ‘hybrid’ qualitative and quantitative baseline emission scenarios are developed. It is found that sectoral contributions and emissions in each scenario vary significantly. The inclusion of governance, social and cultural driving forces are important in determining alternative development paths and sustainability is crucial. Our empirical results show that decomposition analysis is a useful technique to generate the alternative scenarios.     

Technology forecasting for commodity projections: A case study on the effect of substitution by aluminum on the future demand for copper

This paper deals with the possible use of technology forecasting in commodity projection and, to a lesser extent, in resource allocation for research and development. As a specific example, technology forecasting was used to estimate the effect of substitution of copper by aluminum on the future demand of copper in 1980 and 1990. and to identify a future technology for extracting aluminum from clay; a technology which could be especially useful in the developing countries. Basic predictions were made for functional units of the major common end uses of copper and aluminum in 1980 and 1990, including electrical conductor and heat exchanger applications. The amounts of copper required in each application in 1980 and 1990 were estimated for three substitution scenarios. In the first of these, substitution is assumed to take place according to a logistic type function, resulting in a predicted copper demand of 3.70 million tons in 1980 and 4.91 million tons in 1990. In the second scenario, substitution is assumed to progress at past linear rates, resulting in a predicted copper demand of 4.3 million tons in 1980 and 6.41 million tons in 1990. In the third scenario, no further substitution is assumed, resulting in a predicted copper demand of 4.81 million tons in 1980 and 7.77 million tons in 1990. The effective date of the technology monitoring that produced these predictions is July 1974, and the predictions are current as of the date. The then current forecasts for copper demand made by the U.S. Bureau of Mines and other agencies using compound growth and regression models, corresponded to the unlikely scenario of no further substitution, and therefore needed correction in view of these anticipated technological changes.     

Forecasts of the managed futures market – an empirical analysis

Alternative investments, including managed futures, are primarily intended for institutional investors and for very wealthy individual investors. It therefore seems logical to assume, that the increase of wealth on a global scale can be a factor impacting the value of transactions in individual segments of the alternative-investment market. The purpose of this article is to indicate the factors affecting growth of managed futures transactions. Another research goal is to answer the question: Does the increase of wealth on a global scale affect the value of the managed futures transactions? The article will also present short-term forecasts of the transactions on the managed futures market for the years 2015–2017. The forecasts which will be constructed are meant to present possible scenarios of the market’s further development. Evolution of the alternative investment segment leads to development of those categories, which fulfil the expectations of market participants and meet the requirement and expiration of the remaining investments which do not attract investors and are no longer accepted by them.     

Collaborative scenario modeling in emergency management through cross-impact

In this paper we analyze how to apply cross-impact modeling for developing collaborative scenarios in Emergency Preparedness. Scenarios can enhance the understanding of emergency teams about the factors which are involved in the definition of an emergency plan and how different actors participate in it. The version of Cross-Impact Analysis described aims at contributing to this goal through allowing the collaborative development of scenarios out of large event sets. This ultimately reduces the complexity for estimating a working model. In order to illustrate this research effort hypothetical results of a dirty bomb attack scenario exercise are presented, along with the final estimates of relationships based on four rounds of individual estimates followed by discussion of differences in the perceived relationships, in order to achieve a “consensus” model. The purpose of this exercise is to demonstrate the ability of a group to create a working model of the scenario that may be used to examine the consequences of various assumptions about preparedness, plans, and the actions taken during the crisis situation. The method may be used as either a planning tool and/or a training tool. We discuss the process for collecting inputs from a collaborative group and how to improve the consistency of the group inputs in a Delphi-like feedback process. Suggestions for improving details of the wording of items in order to minimize misunderstandings and miscommunication are included, along with suggestions for future extensions to this research.     

Co-evolutionary scenarios for creative prototyping of future robot systems for civil protection

Co-evolutionary scenarios are used for creative prototyping with the purpose of assessing potential implications of future autonomous robot systems on civil protection. The methodology is based on a co-evolutionary scenario approach and the development of different evolutionary paths. Opportunities, threats and ethical aspects in connection with the introduction of robotics in the domestic security and safety sector are identified using an iterative participatory workshop methodology. Three creative prototypes of robotic systems are described: “RoboMall”, “RoboButler” and “SnakeSquad”. The debate in society that might follow the introduction of these three robot systems and society's response to the experienced ethical problems and opportunities are discussed in the context of two scenarios of different future societies.     

Scenario building: Uses and abuses

Scenarios hold little interest if they are not pertinent, coherent, and plausible. Although foresight requires a rigorous approach to address complex problems, the tools must also be simple enough to be easily used. Since the mid-1980s, the approach in strategic prospective workshops (a term that reminds us of the participatory nature of the French approach) has proven its effectiveness in meeting these criteria (simple, rigorous and appropriable; i.e., may be appropriated by participants). The authors try to reply to simple and important questions: What is a scenario? How to judge the quality of a scenario? Which strategies for which scenarios? These questions remind us that applications of strategic foresight tools are contingent and modular. They could also involve the stakeholders from upstream to downstream, as seen in the agro-food sector. Finally, they argue that the future still has to be built and that futurists produced too many scenarios and not enough projects.     

Exploring past and future changes in the ecological footprint for world regions

The Ecological Footprint (EF) has received considerable attention as a useful indicator in the context of sustainable development. So far, it has mostly been applied as a static indicator. Here, we have derived a set of long-term EF scenarios for 17 world regions using the IMAGE 2.2 implementation of the IPCCs SRES scenarios. The scenarios are used to discuss potential trends in EFs in different world regions but also to analyse underlying trends driving changes in the EF. The baseline scenarios show the EF for real land use only (not accounting for CO₂) to increase further in the next few decades in most world regions, being driven by population growth, changes in human diets towards more land-intensive products and overall increases in consumption levels. Future crop yield improvements and technology development will partly offset these trends, resulting in decreasing per capita EFs, but increasing total EFs. In the longer term, EF development may strongly diverge on the basis of assumptions made in the different baseline scenarios (from 5.4 Gha at present to 6.0–8.2 Gha in 2050 depending on the scenario). The aggregated EF following the definition of Wackernagel et al. (Proc. Natl. Acad. Sci. 99 (2002) 9266–9271) (including virtual land for CO₂) increases more strongly, from 12.6 to 20–31 Gha depending on the different scenarios. An alternative scenario was developed to explore whether optimistic assumptions for changes in consumption and production patterns could limit the increase of the global EF, which limited EF increase to 15 Gha in 2050. This scenario still allowed for population growth and strong economic development in low-income regions.     

A DEFENSE OF THE FOMC*

We defend the forecasting performance of the Federal Reserve Open Market Committee (FOMC) against the criticism of Christina and David Romer (2008, American Economic Review 98, 230–235) by assuming that the FOMC’s forecasts depict a worst‐case scenario that it uses to design decisions that are robust to misspecification of the staff’s model. We use a simple macro model and a plausible loss function to illustrate how such an interpretation of the FOMC’s forecasts can explain the findings of Romer and Romer, including the pattern of differences between FOMC forecasts and forecasts published by the staff of the Federal Reserve System in the Greenbook.     

Forecasting development outcomes under alternative surplus labour assumptions

Economic forecasts are useful to policymakers both as aids to planning, and as baselines against which counterfactual scenarios can be compared. However, policy makers should be aware that assumptions relating to model structure can influence forecast results. We explore the sensitivity of forecasts to one aspect of model structure important in modelling developing economies: surplus agricultural labour. We outline a framework for modelling surplus agricultural labour that relies on average product remuneration. We embed this within a model of a developing economy (the Philippines) characterized by surplus agricultural labour. We compare the results of two forecasts that differ in their treatment of the agricultural labour market. In the first, the surplus labour theory is activated, establishing average product remuneration in agriculture. In the second, the surplus labour theory is not activated, creating a failure to recognize average product remuneration in agriculture. By comparing the two simulations, we show that failure to model the presence of average product remuneration, when it would be appropriate to do so, has an impact that would be material to economic planners, leading them to: under-estimate agricultural employment; over-estimate GDP growth; and, over-estimate important policy variables (like tax revenue) that are related to GDP growth.     

Modelling EU tobacco policy reform

Smoking and tobacco use have acquired the dimensions of an epidemic. Recently, a decision by the European Parliament due to health concerns, calls for an elimination of production subsidies within five years. The purpose of this paper is to estimate the economic implications of the reduction of protection levels and to examine whether this policy change will act as an effective tool for less consumption. To this end, two scenarios are examined; namely, a Baseline Scenario, which assumes continuation of current policy measures, and a Policy Scenario where production support is eliminated. According to the results by 2010, EU tobacco consumption in the Baseline scenario is expected to show a modest decline and a more significant decrease in the Policy scenario. In addition, the EU self-sufficiency ratio is projected to decrease in the Policy scenario by almost 14% compared to the Baseline. Therefore, with increasing liberalization of international trade, reducing EU tobacco supply would mostly shift tobacco production to other, mainly, developing countries. Therefore, public policy that aims to reduce tobacco use may need to focus on demand.     

Economywide impacts of climate change on agriculture in Sub-Saharan Africa

Two possible adaptation scenarios to climate change for Sub-Saharan Africa are analyzed under the SRES B2 scenario. The first scenario doubles the irrigated area in Sub-Saharan Africa by 2050, compared to the baseline, but keeps total crop area constant. The second scenario increases both rainfed and irrigated crop yields by 25% for all Sub-Saharan African countries. The two adaptation scenarios are analyzed with IMPACT, a partial equilibrium agricultural sector model combined with a water simulation module, and with GTAP-W, a general equilibrium model including water resources. The methodology combines the advantages of a partial equilibrium approach, which considers detailed water-agriculture linkages, with a general equilibrium approach, which takes into account linkages between agriculture and nonagricultural sectors and includes a full treatment of factor markets. The efficacy of the two scenarios as adaptation measures to cope with climate change is discussed. Due to the limited initial irrigated area in the region, an increase in agricultural productivity achieves better outcomes than an expansion of irrigated area. Even though Sub-Saharan Africa is not a key contributor to global food production (rainfed, irrigated or total), both scenarios help lower world food prices, stimulating national and international food markets.