SIMULATING SOURCES OF UNCERTAINTY IN POLICY FORECASTING WITH A LARGE-SCALE REGIONAL ECONOMETRIC-MODEL

Long-term forecasts may be helpful in establishing the general framework for a region's policy agenda, and a well-structured economic model offers an opportunity to identify major policy instruments affecting a region's long-term growth. Nevertheless, the uncertainty of long-term forecasts should serve to caution policymakers in interpreting and acting upon such information. To offer perspective on this aspect of forecasts, simulations of the Pittsburgh economy are performed to the year 1995 using a large-scale regional econometric model. The forecasts are based on alternative assumptions concerning the performance of the national economy and the objective conditions characterizing key industries in the region. In this way, the model is used to identify and quantify several major sources of uncertainty in long-term regional forecasts.