In particular, it is worth trying to separate the forecasting errors, or revisions of forecasts, into their main determining factors: assumptions regarding policies (notably fiscal policies, but also market expectations regarding monetary policy); exogenous variables (for example, assumptions about the evolution of oil prices or the trend of world demand, on which, despite possible differences of opinion, the Bank of Italy, like the other national central banks, can only adhere to the evaluations agreed within the Eurosystem); and the changes in “initial conditions” underlined by Simon (see Figures 10 and 11).
The simplifications which are the essence of modelling will make sense only if they mirror the essential features of each economy. We need to build models that capture the essence of our economies, and that surely cannot be a mirror of the US. Technology is changing today’s world at an ever more furious pace.