The models within each class may contain different variables or be variants of one another. For a detailed discussion, see Aastveit, K.A, K. Gerdrup, A.S. Jore (2011) “Short-term forecasting of GDP and inflation in real time: Norges Bank’s system for averaging models”, Staff Memo 9/2011, Norges Bank  BIS central bankers’ speeches  3  subsequent round. The Bank has a similar system including almost 250 models for forecasting mainland GDP. The projections from these systems of models extend four quarters ahead in time and are published at regular intervals on the Bank’s website. We call this apparatus SAM (System for Averaging Models). For projections with slightly longer horizons, the Bank parts company with weather forecasters. While meteorologists are unlikely to influence the weather with their predictions, Norges Bank’s interest rate setting can actually influence economic developments in the medium term. This places particular demands on the system of analysis and involves other demands than if the sole purpose were to make forecasts. Norges Bank has developed the Norwegian Economy Model (NEMO), which we use as an aid when drawing up one-yearahead to four-year-ahead forecasts. NEMO is a model for analysing fluctuations in the Norwegian economy around a long-term trend. In the medium term, the economy may in periods deviate substantially from trend, referred to as cyclical fluctuations. When the fluctuations subside, we must assume that the economy is moving towards equilibrium. The long-term trend is not determined by monetary policy, but by assumptions regarding technological developments and the supply of labour and capital.
A further reason for tackling the problem at its roots is that the inefficient use of resources in the public sector can have serious long-term repercussions. At best, these include a growth rate below the economy’s potential because the private sector is deprived of resources it could use more profitability; and, because of the persistence of the deficit, the loss of fiscal policy as a counter-cyclical stabilisation mechanism. At worst, the inefficient use of resources can threaten the viability of the economy itself. Many a financial crisis has been sparked off by the behaviour of profligate and inefficient governments. In today’s globalized financial markets, the retribution for such excesses is quick and unforgiving. Implications for fiscal management It would appear that, like all human endeavours, the benevolent, interventionist role of governments was developed with the best of intentions but, as often happens, something went wrong along the way. Judging by the present state of its public finances, Malta is no exception. For a start, fiscal deficits have become a permanent feature of the economic landscape, which suggests that they do not reflect temporary slippages or cyclical downturns, but rather fundamental policy choices and inefficiencies. Since 1990 the annual shortfall between revenue and expenditure has averaged 6% of GDP, or Lm1 out of every Lm16 earned by the economy.1 There were periods when the deficit tended to fall, but these were not sustained.