Don’t Drive at Night without Headlights: How Econometrics Can Illuminate the Economic Roadway

Headlights at night

The United States Federal Reserve (Fed) is charged with driving some of the most important monetary policies for the global marketplace, with implications spanning both developed and emerging economies.  Collectively, the Fed has some of the brightest economists, combining both academic theory and best business practices for formulating monetary policy.

I recently had the pleasure of sitting down with Dr. Jaime Marquez, a former Senior International Economist at the Fed and close advisor to Frontier Strategy Group, for a podcast on best practices deployed by the Fed for modeling the international economy, as well as how to best apply econometrics to business forecasting.  Our conversation covered ways econometrics can shed light on business planning uncertainty, and how multinationals can utilize econometrics to quantify uncertainty and assess factors important to business.  The podcast explores:

  • The definition of econometrics and how it can be used for financial modeling and forecasting
  • Best practices for selecting metadata and indicators to build robust models for business
  • The importance of monitoring and readjusting models as external events affect the economic climate

I think Jaime captured the key takeaway perfectly using an analogy of a car’s headlights: “You can drive at night without headlights, but you aren’t going to make it very far without crashing.”  Econometrics are the headlights companies can use to help them steer through the uncertainty and obstacles they face, especially in emerging markets where increased volatility and instability abound.  However, Jaime cautions that applying econometrics is certainly not a one-size-fit-all approach, but a general concept that can be adapted to each companies’ strategic goals and business models; this is where Frontier Strategy Group can help.  Jaime also shares his thoughts on trends to watch in 2014, as well as a bold prediction for the coming year at the Federal Reserve. I highly recommend you listen to our insightful 30-minute conversation.  You can download the podcast or subscribe to our Emerging Markets Insights Podcast Series.

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