2 How LINK Forecasts Are Generated

The LINK model resides on the computers at United Nations Headquarters and at the University of Toronto. The modeling system consists of 79 models, representing 72 individual economies and 7 regional groupings (most are small developing economies for which individual models have not yet been integrated). These models are diverse in scale and scope, ranging from small-scale models of a few dozen equations to national systems of several thousand equations. The international transmission between national and regional economies is modeled in various sub-modules, which deal with merchandise trade flows and trade prices, serviceIn economics and marketing, a service is the non-material equivalent of a good. Service provision has been defined as an economic activity that does not result in ownership, and this is what differentiates it from providing physical goods. It is claimed t trade, exchange rateIn finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 120 Japanese Yen to the Dollar means that ¥120 is worth the same as $1. An exchange rate is also known ass, and international commodityA commodity has a different meaning in business than in Marxian political economy. For the former, it is a largely homogenous product, whereas for the latter, it is an item produced for exchange. Business Concept In the world of business, a commodity is a markets. In total, the LINK system consists of 30,000 variables.

Most national models in the LINK system can be described as traditional open-economy macroeconomic models. While economic activity is generally demandA demand is a forceful request. In economics it is a term for the call or need within a market for a particular commodity. It is effective demand when a person's wants or needs are endorsed by the person's ability to pay ( income and/or wealth). When this-driven, supply-side constraints are incorporated in some of the models. The representation of factor demands and prices follows standard economic theory, with proper allowance for national peculiarities. As most of the models are built and maintained by resident national experts, structural country-specific details, such as the transmission of monetaryMonetary policy is the financial policy of managing the money supply to achieve specific goals—such as reducing inflation or achieving full employment or more well-being. Almost always, special institutions (like the European Central Bank or the Federal R and fiscal policies and institutional detail in both the public and the private sector, are well captured.

The most important international linkage operates through the modeling of trade flows and trade prices. LINK applies the concept of a trade matrix, i.e. the bilateral trade shares, disaggregated by a number of commodities. In this framework, a country's exports are a weighted average of partner countries' imports, with the weights given by the appropriate trade shares. Similarly, a country's import prices are derived from partner countries' export prices. As trade shares sum to unity, this approach imposes consistency on international trade flows. A similar approach is currently being developed for international service flows.

International monetary linkages are primarily provided through an exchange rate module. Major currency exchange rates are modeled endogenously as functions of interest and inflation differentials and cumulated wealth positions. The scarcity of international financial data prevents a consistent modeling of bilateral capital flows at the present time.

Important world-wide commodity markets, such as oil, raw materials, etc., are being analyzed in separate sub modules, and these sub-modules will provide price forecasts that can be fed into producer and consumer countries.

Before each LINK meeting, national LINK participants will send to the Center the forecasts of their own economy, including their major policy and exogenous assumptions. The LINK Center is responsible for the international consistency in terms of the following aspects: major currency exchange rates--which should be consistent to the monetary policy assumptions in the major countries; commodity prices and their implied export and import deflator s for the corresponding trade categories across countries; and international trade equilibrium as imposed by the transmission mechanisms.

With several iterations of computer simulation and human interaction, a Pre-Meeting LINK forecast for the world economy can be generated, including outlook for world, regional and country economic activities. This Pre-Meeting forecast will be presented to the LINK Expert Group meeting as the baseline. Since the impose of international consistency could make the forecasts for some countries different from their original single country forecasts, comments and feedbacks from the national experts will be collected in the LINK meeting and a Post-Meeting LINK forecast will be generated after the meeting.

LINK forecasting, to some extent, is a process, a dynamic interaction among the economists involved in the Project.

3 See Also

• Macroeconomics

4 External Links

• Project LINK at the United Nations
• Project LINK at the University of Toronto

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