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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
; Hall, Stephen G.; Heilemann, Ullrich and Pauly, Peter. Macroeconometric Models and European Monetary Union. Duncker & Humblot, 2004. Book. https://doi.org/10.3790/978-3-428-51398-7
Hall, S, Heilemann, U, Pauly, P (eds.) (2004): Macroeconometric Models and European Monetary Union, Duncker & Humblot, [online] 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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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.

Table of Contents

Section Title Page Action Price
Preface 5
Contents 7
Stephen G. Hall, Ullrich Heilemann, and Peter Pauly: Introduction 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. Introduction 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. Conclusion 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. Calibration 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. Introduction 79
2. Overview of the model 81
2.1 Inflation 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 illustration 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 Introduction 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 consumption 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 Spain 145
2.2.2 A supply shock in Spain 147
2.2.3 A demand shock in Portugal 149
2.2.4 A supply shock in Portugal 150
2.3 General conclusion 150
References 165
Ullrich Heilemann, György Barabas, and Hiltrud Nehls: Shifts or Breaks? – West German Macroeconomic Parameters and European Integration 167
1. Major fields of European integration and their macroeconomic consequences 170
1.1 Trade liberalisation 170
1.2 Fiscal co-ordination 173
1.3 Monetary integration 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. Introduction 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. Introduction 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 vector 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