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 12: The Bank of Italy's quarterly model

Fabio Busetti, Alberto Locarno and Libero Monteforte

Subjects: economics and finance, econometrics, money and banking


12. The Bank of Italy’s quarterly model Fabio Busetti, Alberto Locarno and Libero Monteforte 1 INTRODUCTION AND HISTORY The Bank of Italy quarterly model (BIQM) is a new version of the model developed in the mid-1980s by a team of economists of the Research Department supervised by Albert Ando (Banca d’Italia, 1986). The architecture of this model had its foundations in previous modelling experience at the Bank, in particular M1BI (Banca d’Italia, 1970) and M2BI (Fazio and Sitzia, 1979) developed under the supervision of Franco Modigliani, but it also represented a major improvement in many respects. It integrated new time series results on cointegration and error correction specification; it reconstructed in detail the flow of funds of the economy; it benefited from the experience of the large-scale macroeconometric models of the 1980s, particularly the MPS of the US economy (Brayton and Mauskopf, 1985); it incorporated specific institutional mechanisms of the Italian economy. For example, the model’s Phillips curve was adapted to the changes in the bargaining framework agreed upon by the social partners in July 1993, in particular the dismissal of automatic indexation and the substitute mechanism for recovering price increases in excess of the inflation target. Since the presentation of the first release, the BIQM has continuously evolved to take account of new data sources, changed institutional frameworks and a variety of expectations formation mechanisms and policy rules. More recently the model has been adapted to the ESA-95 standard of national accounts and to the...

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