4. The Eurosystem’s multi-country model and the link block Tohmas Karlsson and Peter McAdam 1 INTRODUCTION This chapter brieﬂy describes the main features and uses of the Eurosystem’s multi-country model (MCM).1 The model, the outcome of a joint project coordinated by the WGEM, comprises ‘country blocks’, one for each country of EMU, linked together with a ‘trade block’.2 The various country blocks have been developed either by the corresponding NCB, the ECB, or jointly, whereas the trade block has been developed at the ECB. 2 THE USES OF THE MCM The various blocks comprised in the MCM are used for both projections and policy analysis. In central banks where the country blocks of the MCM are employed in forecasting tasks, projections are generally arrived at by a combination of judgmental and oﬀ-model inputs as well as the simulated output of the models.3 The trade block of the linked MCM model plays an important role in the so-called ‘trade consistency exercise’ (TCE), which forms part of the macroeconomic projection exercises of the ECB and ESCB. In these exercises, projections are prepared separately for each individual country. In order for these individual projections to serve as a reliable guide for area-wide conclusions, it is necessary that the country projections of trade volumes and prices are consistent with each other as well as being consistent with the assumptions made about the external environment. In a number of central banks, including the ECB, policy analysis is performed with the MCM through...
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