GM

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. 

• 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 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

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.