This paper examines factors affecting saving, policy tools, and tax reform. The literature on factors affecting saving and capital formation in industrialized countries is reviewed, and measurement problems are examined. The effect on the saving rate of real rates of return, income redistribution, allocation of saving between corporations and individuals, growth of public and private pension plans, tax incentives, the bequest motive, energy prices, and inflation is considered. The limited tools available to policymakers to affect savings are discussed.

This paper presents details of a symposium on forecasting performance I organized under the auspices of the IMF Staff Papers. The assumption that the forecaster's goal is to do as well as possible in predicting the actual outcome is sometimes questionable. ln the context of private sector forecasts, this is because the incentives for forecasters may induce them to herd rather than to reveal their true forecasts. Public sector forecasts may also be distorted, although for different reasons. Forecasts associated with IMF programs, for example, are often the result of negotiations between the IMF staff and the country authorities and are perhaps more accurately viewed as goals, or targets, rather than pure forecasts. The standard theory of time series forecasting involves a variety of components including the choice of an information set, the choice of a cost function, and the evaluation of forecasts in terms of the average costs of the forecast errors. It is generally acknowledged that by including more relevant information in the information set, one should be able to produce better forecasts.

This paper analyzes macroeconomic effects of projected population aging in industrial countries. The effects of population aging are examined with a theoretical model and simulations of the IMF’s multiregion econometric model (MULTIMOD). The study highlights that an older population will consume more of aggregate disposable income, require higher government expenditure, and decrease labor supply. These effects should raise real interest rates and lower capital stock and output. Effects on current balances will depend on the relative speed and extent of aging.

This paper extends a standard growth model and obtains consistent panel data estimates of the growth retarding effects of military spending via its adverse impact on capital formation and resource allocation. Simulation experiments suggest that a substantial long-term “peace dividend”—in the form of higher capacity output—may result from markedly lower military expenditure levels achieved in most regions during the late 1980s, and the further military spending cuts that would be possible if global peace could be secured.

This paper focuses on exchange rate economics. Two main views of exchange rate determination have evolved since the early 1970s: the monetary approach to the exchange rate (in flexible-price, sticky-price, and real interest differential formulations); and the portfolio balance approach. In this paper, the literature on these views is surveyed, followed by a discussion of the empirical evidence and likely future developments in the area of exchange rate determination. The literature on foreign exchange market efficiency, exchange rates and “news,” and international parity conditions is also reviewed.

This first issue of Volume 51 for 2004 includes a new paper by Peter B. Clark and Jacques J. Polak, along with a tribute from the Editor to Mr. Polak in honor of his 90th birthday. This issue also launches a new featured section, "Data Issues," which will be devoted in future issues to on-going discussions of the latest in econometric and statistical tools for economists, data puzzles, and other related topics of interest to researchers.

Common issues emerging from the recent experience with IMF-supported programs in Hungary, Poland, Czechoslovakia, Bulgaria, and Romania are analyzed. These comprise the initial price overshooting and output collapse and the financial and structural problems associated with bad loan portfolios and sluggish implementation of privatization programs. Substantial success has been achieved in the initial microstabilization and opening-up effort. But difficulties with fiscal and monetary control may be emerging as a result of social and political pressures and unclear policy signals on the micro issues involving the structural transformation of the productive and financial systems.