Annex 4 analytical methods

model description

general description

acronym: GM

name: Global Multicountry model

main purpose: The GM model is a global macro-economic model used to perform forecasting, medium term projections and spillover analysis in sync with the EU's annual cycle of economic surveillance procedures (the European Semester).

homepage: https://joint-research-centre.ec.europa.eu/scientific-activities/macroeconomic-monitoring-fiscal-surveillance-forecasting-and-nowcasting/global-multi-country-model_en

Developer and its nature

ownership: EU ownership (European Commission)

ownership additional info: Jointly developed by JRC.B.1 and DG ECFIN.DDG2.B.3 since 2014

is the model code open-source?: NO

Model structure and approach with any key assumptions, limitations and simplifications

details on model structure and approach

GM belongs to the class of New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) models that are widely used by international institutions and central banks. These models have rigorous microeconomic foundations derived from utility and profit optimisation and include frictions in goods, labour and financial markets.

The GM model has been estimated with a flexible geographical configuration which encompasses multiple region economies linked by financial and trade linkages. The versions estimated with full-information Bayesian techniques include the GM2-EA (euro area - EA - and Rest-of-the-world -RoW), the GM2-EU (European Union and RoW), the GM3-US (EA, the United States and RoW) and the countries specific versions, namely, GM3-DE, GM3-FR, GM3-IT, GM3-ES and GM3-PL, where the detailed country economy is studied together with the detailed Rest-of-the-euro area (EA for Poland) and the RoW.

The GM model has been designed in order to complement QUEST to support the EC in its macroeconomic surveillance, monitoring and forecasting tasks. While the QUEST versions have a larger degree of complexity (e.g. featuring housing and credit-constrained households, financial cross-holdings), versions of GM are kept a lower level of complexity in order to reduce the computational burden, being intended to be regularly re-estimated for all the different country configurations.

The estimated versions of the GM model are regularly used in the context of Economic forecasts [Spring/Autumn rounds] and in general to support the EC in its macroeconomic surveillance and monitoring tasks.

model inputs

National account data (GDP and its components, current and constant prices)
Labour market data (wages, employment)
Financial variables (interest rates)
Trade data
Monetary data (interest rates)
etc

model outputs

Model parameter estimates to be used for simulation (time evolution of all macro-variables of interest in response to a shock in the economy or changes in policy) and model-based policy analysis;

Among the macroeconomic variables of interest, GM model allows to study dynamics and economic drivers of
- GDP and its components
- Price deflators
- Fiscal variables
- Employment, wages
- Interest rates
- Trade
- etc

Intended field of application

policy role: The GM model is suitable for policy preparation and implementation. It has been designed in order to complement QUESTIII to support the EC in its macroeconomic surveillance, monitoring and forecasting tasks. GM model is employed to support the EC in the analysis of international real and financial spillovers, in the assessment of the impact of relevant shocks, like pandemics or trade-fragmentation, in the ex post assessment of specific policy implementation with counterfactual analysis. It is systematically used in the European Economic Forecasts for driver analysis, counterfactual exercises, and scenarios to inform on the macroeconomic impact of various sources of risk.

policy areas

Economy, finance and the euro
Taxation
Employment and social affairs
Energy
Competition
Trade

Model transparency and quality assurance

Are uncertainties accounted for in your simulations?: YES - Model analysis can take into account parameter and shock uncertainty

Has the model undergone sensitivity analysis?: YES - Parameter estimates and model results are assessed via sensitivity analysis

Has the model been published in peer review articles?: YES - There has been no formal evaluation of thhe model by an external panel, however, the model version on GM3 (EA-US-ROW) has been published as peer-review article

Has the model formally undergone scientific review by a panel of international experts?: NO

Has model validation been done? Have model predictions been confronted with observed data (ex-post)?: YES - The model-implied k-step ahead forecasts of the macroeconomic variables of interest are compared with observed data

To what extent do input data come from publicly available sources?: Entirely based on publicly available sources

Is the full model database as such available to external users?: YES - Taken from public source

Have model results been presented in publicly available reports?: YES

Have output datasets been made publicly available?: YES - Made available through peer-reviewed publications

Is there any user friendly interface presenting model results that is accessible to the public?: NO

Has the model been documented in a publicly available dedicated report or a manual?: YES - Model structure is described in the peer-review publication. Algorithms and codes can be made available on request

Intellectual property rights

Licence type: Free Software licence

application to the impact assessment

Please note that in the annex 4 of the impact assessment report, the general description of the model (available in MIDAS) has to be complemented with the specific information on how the model has been applied in the impact assessment.

See Better Regulation Toolbox, tool #11 Format of the impact assessment report).