Apart from specification problems, there is the issue of exogenous assumptions that get fed in to the model. A forecast generated by even the most perfect model will only be as good as the assumptions that are used. Very often these exogenous assumptions are notoriously difficult to predict.
In the long run, no-one – including financial institutions themselves – benefits from a regulatory race to the bottom. Lobbying for particular special interests in regulation can, in the end, be counterproductive if it succeeds in derailing moves to agree international standards. Conclusion The recovery in the euro area is gaining more and more traction.