This page provides details of the macroeconomic model that is an important tool used by the Budget Responsibility Committee – and operated by OBR staff – when producing our economy forecasts. The key features of those forecasts reflect the judgements made by the Budget Responsibility Committee, working with our full-time staff. These judgements and other assumptions are fed into the model, rather than the model itself being the ultimate source of the forecast. The specific model that we use is a large-scale macroeconomic model.
The macroeconomic model is a simplified representation of the economic activity described and recorded in the National Accounts published by the Office for National Statistics (ONS). The model was originally developed by the Treasury in 1970. It has been constantly updated and improved since then. Since the creation of the OBR in June 2010, the model has been jointly maintained and developed by the OBR and the Treasury. A Memorandum of Understanding sets out the governance arrangements for this shared ownership. Co-ownership of the model in no way compromises the ability of the OBR to forecast independently of Government. We have complete freedom over the version of the model that we use and could adopt an alternative version if we so wished.
More importantly, the model is a computational tool – it is the forecaster using it, applying judgements, that bears responsibility for producing a coherent forecast. That means that two forecasters using exactly the same model could end up with very different forecasts because the judgements underpinning them differ. That said, using a model helps ensure that judgements are applied in a mutually consistent way. It also allows us to generate consistent forecasts for a large number of variables from a smaller set of key judgements. The behavioural relationships implied by the main macroeconomic model represent only one source of information considered in our economy forecast. We use a range of other approaches and models – for example, we consider a variety of approaches to estimating the output gap before we settle on our central estimate, as explained in Working Paper No.5: Output gap measures: Judgement and uncertainty. Further discussion of how we use the macroeconomic model is set out in Chapter 1 of Briefing Paper No.5: The macroeconomic model.
The latest version of the model code is available for download below. This is a more recent version of the model than that detailed in Briefing Paper No.5. While the core structure of the model remains largely unchanged, a number of behavioural equations have been updated to reflect more recent data, while the model has also been updated for changes to the National Accounts relating to the introduction of the 2010 European Systems of Accounts (ESA10). Further detail on updates to the model will be provided in due course.
Anyone wishing to use this model should be aware that the model code is made available to users for their use based on their own assumptions. As such, results produced by the model do not constitute the views of the OBR or the Treasury, nor are they to be regarded as OBR or Treasury forecasts. The model code is set out and provided ‘as is’, without any representation or endorsement made and without warranty of any kind. We do not warrant that the functions contained in the model are error free, and in no event will be liable for any loss or damage whatsoever arising from its use. The model code is operated, read and solved using the program EViews.