Econometric Models of the Euro-area Central Banks
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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.
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Chapter 7: The macroeconometric multi-country model of the Deutsche Bundesbank

Britta Hamburg and Karl-Heinz Tödter


Britta Hamburg and Karl-Heinz Tödter 1 INTRODUCTION The macroeconometric model of the Deutsche Bundesbank has been used continuously for policy analysis and forecasting since about 1970.1 It was one of the first macroeconometric models for the German economy. Since its initial setting up, the model of the Bundesbank has undergone several stages of development which have led to considerable changes in the model’s structure over time. In line with macroeconomic theory of the 1970s, the Bundesbank’s model started as a Keynesian system in which output was driven by demand and relative prices played a small role in the goods and labour market, even in the long run. However a strong emphasis was placed on the financial sector of the economy, albeit with exogenous instruments of monetary policy. In the 1980s the model was respecified along neoclassical lines. Behavioural equations were derived from assuming optimizing firms and households. A supply side based on a production function was introduced and the labour market was modelled in more detail. Moreover a portfolio demand system for the financial assets and liabilities of the private sector was added. The estimated equations were increasingly formulated in terms of error corrections mechanisms, allowing the long run to be separated from the dynamics of the adjustment process. The need to respecify the model arose after German reunification and the introduction of the D-Mark in eastern Germany in 1990. For a short time, two separate western and eastern German blocks were modelled. However, owing to data...

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