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UI's Whiteman Plays Key Role in State's Revenue Forecast

In a third-floor office at the University of Iowa's Tippie College of Business, a soft-spoken economist wrestles with a complex question of importance to all Iowans. It's the same question CHARLES WHITEMAN, 49-year-old director of the UI Institute for Economic Research, wrestles with every three months, a question so big that efforts to compute the answer once took a week of processing time on an early version of the personal computer. The question: How much money will the state of Iowa take in next year? Whiteman became chairman of the Iowa Economic Forecasting Council in 1990, and devised the Iowa Forecasting Model that has been used 30 times since to predict tax revenues.

Interest in this obscure line of work has grown as unforeseen revenue shortfalls during the recession and early stages of recovery consumed much of the state's financial reserves and forced elected officials to pare budgets. In an effort to rebuild reserves, lawmakers now want to decrease the percentage of the state's official revenue estimate the governor and Legislature can budget for spending from 99 percent to 98 percent. Whiteman's model uses a form of analysis called Bayesian prediction. He compares it to filming traffic at various points along a busy highway over a long period, then using the film to predict how far a vehicle could travel on the highway between two future points in time. The process doesn't take an understanding of what causes the 14 or so variables in the model to change, Whiteman says, just as forecasting a car's progress through traffic doesn't require an understanding of its engine design. "It's trying to exploit irregularities in a large number of economic variables and how they move over time," he says.


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