Econometric Models of the Euro-area Central Banks

Econometric Models of the Euro-area Central Banks

Edited by Gabriel Fagan and Julian Morgan

This book provides a description of the main macroeconomic models used by the European Central Bank and the euro area national central banks (Eurosystem). These models are used to help prepare economic projections and scenario analysis for individual countries and the euro area as a whole.

Chapter 4: The Eurosystem's multi-country model and the link block

Tohmas Karlsson and Peter McAdam

Subjects: economics and finance, econometrics, money and banking


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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