Macroeconometric Models and European Monetary Union

doi:10.3790/978-3-428-51398-7

Macroeconometric Models and European Monetary Union

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Hall, S., Heilemann, U., Pauly, P. (Eds.) (2004). Macroeconometric Models and European Monetary Union. Duncker & Humblot. https://doi.org/10.3790/978-3-428-51398-7

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Macroeconometric Models and European Monetary Union

Editors: Hall, Stephen G. | Heilemann, Ullrich | Pauly, Peter

Schriften des Rheinisch-Westfälischen Instituts für Wirtschaftsforschung, Vol. 73

(2004)

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Publisher Name: Duncker & Humblot
ISBN: 978-3-428-51398-7
978-3-428-11398-9 (print edition)
DOI: https://doi.org/10.3790/978-3-428-51398-7
Edition: 1
Language: English
Pages: 226
Collections: WIRTSCHAFTSWISSENSCHAFTEN 1996–2005
Duncker & Humblot Open Access
Subjects: Macroeconomics

Abstract

This volume contains the contributions of a conference dealing with the consequences of the European Monetary Union for the macroeconometric modelling of the Euro area, which took place in Essen in 2000. At the end of the conference the participants were convinced that the discussions including a great variety of theoretical, methodical and factual aspects from the producers' as well as the consumers' perspective will not fail to have a certain impact on the future development of macroeconometric modelling in the Euro area.

Once more it became clear, however, that an ideal way to a solution of the problems is still not in sight. The future development will be characterized by a plurality of approaches and models. Thus trends continue which have had a more or less strong, durable or temporary influence on the model landscape since the emergence of the monetarist revolution, the "rational expectations" or the "real business cycle"-models. We are still at the beginning of the theoretical and empirical exploration of the macroeconomic development of the Euro area, it is not always clearly perceptible what is transitory and what is permanent, and this openness should facilitate the reception of the experiences and results which have been presented.

The idea for this event was developed in the course of the Project LINK. One of the highlights of the conference was the participation of the nobel prize winner Professor Dr. Lawrence Klein - pioneer and Nestor of macroeconometric modelling - who, as his contribution shows, is following up the creation of the European Monetary Union with critical interest.

Section Title	Page	Action	Price
Preface	5
Contents	7
Stephen G. Hall, Ullrich Heilemann, and Peter Pauly: Introductio	9
Lawrence R. Klein: US and NAFTA – Some First Experiences and Modelling	15
Future prospects	17
References	18
Michael Beeby, Stephen G. Hall, and S.G. Brian Henry: Modelling the Euro-11 Economy: A Supply-Side Approach	19
1. Introductio	19
2. The data	21
3. The model	24
4. Estimation results	29
5. Estimating the NAIRU in the Euro-11	31
6. Simulation exercises	31
7. Conclusio	37
Appendix: Estimation Results	37
References	39
Mika Kortelainen and David G. Mayes: Using EDGE – A Dynamic General Equilibrium Model of the Euro Area	41
1. An outline of the EDGE model	43
2. Calibratio	44
3. Simulations to set the characteristics of the model	46
3.1 A shock from government policy	47
3.2 A permanent increase in the equity premium	47
3.3 A permanent increase in world demand	51
4. Monetary policy simulations	51
4.1 A temporary interest rate shock	53
4.2 The importance of credibility in monetary policy	55
4.3 Learning	59
5. Implications	64
Appendix	66
1. List of equations	66
2. The steady state model	69
References	77
David Rae and David Turner: A Small Global Forecasting Model	79
1. Introductio	79
2. Overview of the model	81
2.1 Inflatio	82
2.2 GDP and the output gap	87
2.3 Import prices	95
2.4 Commodity prices	97
2.5 Other variables	99
3. Simulation properties	101
3.1 The inflationary consequences of a global boom	101
3.2 United States domestic demand and monetary policy	103
4. Summary and future developments	105
Annex: Standard simulation results	107
Appendix – Data Definitions	111
References	112
Gabriel Fagan, Jérôme Henry, and Ricardo Mestre: Structural Modelling of the Euro Area	115
1. The story underlying the history of euro-area modelling at the ECB	116
1.1 A specifically challenging context	116
1.2 A suite of models, with priority on structural models	117
1.3 Two structural models, the AWM and the MCM, supplemented with other tools	118
2. An illustration of the approach: the AWM	119
2.1 The AWM Basic structure	119
2.2 Long run solution of the model: stylised facts	121
2.2.1 Supply side	121
2.2.2 Demand side	121
2.2.3 Monetary side	122
2.3 Long-run and short-run properties of some of the key equations	123
2.4 Adjustment to equilibrium and short-run mechanisms: an illustratio	124
2.5 Evaluation and use of the model	127
3. Conclusions	127
References	128
Jean Louis Brillet and Maria Dos Santos: The Consequences of EMU Entry for Spain and Portugal – Simulations Using the MacSim System	131
1. The model	131
1.1 Introductio	131
1.2 The single-country basic model	131
1.2.1 Productive investment	133
1.2.2 Employment	133
1.2.3 Unemployment	134
1.2.4 The value added price	134
1.2.5 The trade prices	134
1.2.6 The wage rate	135
1.2.7 The changes in inventories	135
1.2.8 Household consumptio	135
1.2.9 Imports	136
1.3 Integrating the financial variables	136
1.3.1 The options for the interest rate	137
1.3.2 The options for the exchange rate	138
1.3.3 Summarizing the influences	138
1.3.4 Enhancing the role of interest rates	139
1.4 Merging the models	140
1.4.1 The exchange block	140
1.4.2 The Rest of the World	142
2. The model properties	143
2.1 Simulation context	143
2.2 The shocks	144
2.2.1 A demand shock in Spai	145
2.2.2 A supply shock in Spai	147
2.2.3 A demand shock in Portugal	149
2.2.4 A supply shock in Portugal	150
2.3 General conclusio	150
References	165
Ullrich Heilemann, György Barabas, and Hiltrud Nehls: Shifts or Breaks? – West German Macroeconomic Parameters and European Integratio	167
1. Major fields of European integration and their macroeconomic consequences	170
1.1 Trade liberalisatio	170
1.2 Fiscal co-ordinatio	173
1.3 Monetary integratio	174
2. Examining European integration – theoretical and methodical issues	175
2.1 The RWI-business cycle model	176
2.2 Methods of analysis	178
3. Results	179
3.1 Single-equation context	179
3.2 The complete macroeconomic model context	185
4. Summary and conclusions	187
Literature	188
Ray Barrell, Karen Dury, and Ian Hurst: Decision Making within the ECB: Simple Monetary Policy Rules Evaluated in an Encompassing Framework	191
1. Introductio	191
2. An encompassing framework	193
3. The model	195
4. Stochastic simulations	196
5. Results	198
6. Euroland aggregates	202
7. Conclusions	204
References	204
Christian Schumacher and Christian Dreger: Money Demand in Europe: Evidence from Panel Cointegration Tests	207
1. Introductio	207
2. Econometric methodology	208
2.1 Pedroni (1999) cointegration tests	209
2.1.1 Group statistics	210
2.1.2 Panel statistics	211
2.2 Fully modified OLS estimators of the cointegration vecto	213
3. An empirical application to money demand in Europe	214
4. Discussion of methods and results	218
5. Conclusions	219
Data appendix	219
References	221
List of Authors	223

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