Chapter 1: An overview of the structural econometric models of euro-area central banks
Gabriel Fagan and Julian Morgan1 This chapter provides a comprehensive overview of the main structural econometric models used by the European Central Bank (ECB) and the euro area national central banks (Eurosystem). It takes stock of the current macroeconometric modelling infrastructure available within the Eurosystem, highlighting not only the structures and main features of the models used but also their purposes and underlying model-building philosophies. It also includes information on how the models respond to economic shocks, such as changes in monetary or ﬁscal policy. The models described in this volume are used to assist in the preparation of economic projections and for scenario and policy analysis. They include national, multi-country and euro-area aggregate models. Chapters 2 and 3 describe two models which treat the euro-area as an aggregate single economy; Chapters 4 and 5 describe two linked multi-country models of euro-area economies, while Chapters 6–17 describe the national models of each of the individual euro-area economies. The above chapters provide a ‘bird’s eye view’ of the key details of the design, structure and characteristics of each of the models. Despite the number and variety of the models described in this volume, it is worth noting that these large-scale structural models form only a subset of the tools used in the Eurosystem. Many alternative approaches (such as time-series models, structural vector autoregressions and computable general equilibrium models) are available and are widely used. In addition, models are not used mechanically and expert judgment plays an important role in economic...
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