Full Intercountry Dynamic Econometric Long-term Input-Output Model

FIDELIO is a multi-sectoral model developed by JRC and it is designed to evaluate sustainable production and consumption policies through a dynamic econometric input-output model. The model conducts scenario analysis on the costs and impacts of policy measures and techno-economic shocks providing their economic (jobs, value added, investment…) and environmental effects (resource use, air emissions…). The model was developed on the basis of a JRC initiative due to the absence of other similar modelling activities that could have been used to evaluate sustainable consumption and production policies.

FIDELIO is a dynamic econometric input-output model covering all countries of the EU plus seven non-EU ones (Brazil, China, India, Japan, Russia, Turkey, and the USA). On the basis of a base year, which is changed once every five to seven years, there are six final demand categories (private consumption, public consumption, non-profit sector servicing households, investment, inventories, and exports) and 56 sectors. It features policy-relevant economic variables such as detailed household consumption, a production function, international trade flows, and greenhouse gas emissions.

FIDELIO can be used for policy formulation and evaluation for assessing economic and environmental impacts of sustainable production and consumption policies capturing both spillover and rebound effects, i.e. policy measures on the demand side (consumption) and on the supply side (production) can lead to impacts in jobs, growth, energy savings, investments, resource use, air emissions and trade balance, all of which can be quantified through the model.

FIDELIO was used for the analysis of the EU scrappage policy to reduce air emissions from household heating appliances (ex-post evaluation) and the assessment of consumption based policies (ex-ante evaluation).

FIDELIO is a demand-driven model in the IO tradition, but more flexible than standard IO quantity and price models due to the following, among other, reasons:

• FIDELIO uses various flexible functions (e.g., CES cost functions, Almost Ideal Demand System - AIDS) that are based on economic theory;
• prices and quantities are linked through theory-based equations in the model, while they are entirely separate within the traditional IO framework;
• while prices in the IO price model are identical for all intermediate and final users, in FIDELIO prices are user-specific due to its proper account of margins, taxes and subsidies, and import shares that are different for each user;
• some of the final demand categories, as well as value added components, in FIDELIO are endogenous, while in the IO standard quantity model they are all exogenous;
• certain supply-side shocks can be simulated within FIDELIO, although the model is better suited for the analysis of demand-side shocks.

FIDELIO models a set of users which is constituted by 56 industries and by six final demand categories (private consumption, public consumption, non-profit sector servicing households, investment, inventories, and exports). This mimics the structure of the use matrix featured in the IO Supply and Use Tables and in the WIOD, which constitute the modelling starting point, the underlying structure, and a large part of the data used in FIDELIO. There are also 56 goods in FIDELIO, although they do not correspond, as in input-output tables, one-to-one to the 56 industries. By definition, Supply tables admit secondary products so, for example, industry 1 may produce good 1 as well as other goods.

Fidelio has a rich household block modelling consumption of durable and non-durable goods separately. The former category is made by four energy goods (fuel for heating, electricity, private and public transport) and eight of non-energy goods modelled within an AIDS. Data for this take advantage of COICOP categories in National Accounts. The supply side of the economy is characterised by a CES production function taking into account several factors of production: capital, labour, energy, and domestic and imported intermediates. Governmental balances feature a number of revenues and expenditures, with government consumption that can be either endogenous or exogenous. The labour market can also be endogenised via a wage curve, while for simplicity it can be maintained exogenous with fixed unemployment rate and labour supply.

FIDELIO shows several similarities with (dynamic) CGE models, ranging from the base year calibration method to the use of recursive dynamics and to the treatment of international trade via the Armington structure. It also deviates from specifications in CGE models in some important aspects. For instance, in FIDELIO the supply side has no capacity constraints, as the output of firms is fully determined by the demand side. At the same time, supply side aspects come into play because factor costs and prices play a role in determining the level of demand.

Dynamics come also into play because of the presence of stock variables evolving over time as well as a certain degree of inter-temporal optimization by households and the government. Behavioural parameters are mostly estimated econometrically, and taken from the literature when the estimation was not possible. Base year data coming mainly from Eurostat’s Supply and Use Tables (SUTs) and World Input-Output Database (WIOD, 2016) for 2010 are replicated by the model, which then uses recursive dynamics to produce baseline and simulation scenarios up to 2050.

The following are the main sources of input used in FIDELIO:

• Annual world Inter-country Supply, Use and Input-Output tables at basic prices for a base year (WIOD database)
• Productivity satellite accounts from the EU-funded project EUKLEMS (value added, wages, jobs, skill levels...)
• Environmental satellite accounts from Eurostat’s Environmental Accounts (air emissions, waste, water accounts, and environmental protection expenditures) and the projects EXIOPOL and WIOD.
• Other sources involved include the IEA’s Energy Balances and the EEA ETC-ACC.
• A database on consumption relating final demand (CPA) to COICOP classification based surveys.
• Household Budget Surveys (consumption by COICOP categories and types of households)
• National Accounts (goods and services account, production account, primary income accounts and financial accounts)
• Other complimentary datasets by OECD, Eurostat, European Commission...
• A number of parameters for the behavioural equations of the model (Armington elasticities, trade elasticities…)

Data and exogenous parameters are imported into FIDELIO, which runs on GAMS, via a number of Excel files. Similarly, results are exported to an Excel files, as well as being available in gdx format.