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 13: The Luxembourg block of the multi-country model

Paolo Guarda


Paolo Guarda 1 INTRODUCTION The Banque centrale du Luxembourg was only created in 1998, so experience of macroeconometric model building is relatively recent. It has centred on developing the Luxembourg block of the ESCB multi-country model (MCM). The current version of this block is annual, as Luxembourg has not yet published quarterly national accounts. Most equations are estimated over the period 1970–2000; however, since ESA-95 national accounts for Luxembourg are only available for 1985 onwards, the earlier part of the sample was obtained by splicing the series with ESA-79 growth rates. The model is coded in Eviews and is relatively small, including about 67 equations, of which about 20 are estimated behavioural relations and the rest are identities. The MCM is highly aggregated, with no distinction made between consumption of durables and non-durables, between investment in equipment or in construction, between trade in goods or in services, or among the different branches of production. In the Luxembourg MCM block, public sector employment does not appear as a separate variable; public sector investment only appears in nominal terms (as part of government expenditure) and is exogenous, as is real public consumption. Public finances are modelled by several equations, but there is no separate block modelling financial variables such as monetary aggregates, equities, bonds and real estate prices. The current version of the model is backward-looking, with expectations only entering implicitly in the dynamic specifications through lagged values of the variables. All model parameters are estimated, with the behavioural...

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