Developing the indicative guidelines requires selection of reference values or norms for each indicator, as well as rules to guide the assessment of the indicators against the norms or reference value to determine if imbalances are large. This has been done using two different methodologies – structural and statistical.
While the IMF’s preference is for the structural approach because of its theoretical consistency, given the inherent fragility and contestability of econometric estimates that can deviate sharply from the observed data, the Framework Working Group has designed a method that combines these two approaches. The question we need to consider is whether there is consistency between the results of the statistical and structural approaches.