QUEST

Macroeconomic model QUEST
Fact Sheet

Source: Commission modelling inventory and knowledge management system (MIDAS)

Date of Report Generation: Mon Apr 22 2024

Dissemination: Public

© European Union, 2024

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Overview

Acronym

QUEST

Full title

Macroeconomic model QUEST

Main purpose

A macro-economic model used to analyse and understand the state of the EU economy.

Summary

QUEST is a macro-economic model (Dynamic Stochastic General Equilibrium) used to analyse and understand the state of the EU economy. It is developed by DG ECFIN, and estimated model variants have been developed jointly with support from the JRC. The first version of QUEST was applied in 2007, and many extensions have been developed since.

QUEST belongs to the class of New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) models that are now 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. With empirically plausible estimation and calibration they are able to fit the main features of the macroeconomic time series. The QUEST model has been estimated on euro area and US data using Bayesian estimation methods. Calibrated model versions are used in wider applications.

QUEST supports questions related to policy formulation, implementation and evaluation. Many of the main applications deal with fiscal and monetary policy interactions. In order to deal with the wide range of policy issues in DG ECFIN, different model versions of the QUEST model have been constructed, each with a specific focus and regional and sectoral disaggregation.

Model categories

Economy

Model keywords

macroeconomic modelDSGE model

Model homepage

https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/economic-research/macroeconomic-models_en

Ownership and Licence

Ownership

EU ownership (European Commission)

Ownership details

The model is owned by DG ECFIN.DDG2.B.3

Licence type

Non-Free Software licence

The license has one or more of the following restrictions: it prohibits creation of derivative works; it prohibits commercial use; it obliges to share the licensed or derivative works on the same conditions.

Details

Structure and approach

QUEST III belongs to the class of New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) models that are now 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. With empirically plausible estimation and calibration they are able to fit the main features of the macroeconomic time series. Calibrated model versions are used for most policy applications, but the  QUEST III model has also been estimated on Euro Area, US and specific Euro Area countries (ES, DE) data using Bayesian estimation methods. 

In order to deal with the wide range of policy issues in DG ECFIN, different model versions of the QUEST III model have been constructed, each with a specific focus and regional and sectoral disaggregation. Many of the main applications deal with fiscal and monetary policy interactions and either use a one-sector model or models that explicitly distinguish tradable and nontradable sectors, and include trade in intermediates. Other  model variants also include housing and collateral constraints.

QUEST III has also been used for the analysis of structural reforms and another version has been employed for the analysis of energy and climate change policies. All these models are employed using different country disaggregations, focusing on the euro area or EU as a whole, and other global regions, or on individual member states.

The models are developed by the modelling unit in DG ECFIN. The Joint Research Centre of the European Commission supports QUEST development providing econometric, computational and methodological expertise in estimation and calibration, maintaining dedicated IT resources.

An update of some new developments of the QUEST III models was described in ECFIN Research Letter Vol.3.Issue 1/2009 (pp 10-13).  For further references on the QUEST model, see the model homepage.

Input and parametrization

Key inputs for the estimated model versions are coming from national accounts and other macroeconomic data source. The main ones are:

  • 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)

Main output

Key outputs produced by the model:

  • 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, the model allows to study dynamics and economic drivers of:
    • GDP and its components
    • Price deflators
    • Fiscal variables
    • Employment, wages
    • Interest rates
    • Trade

Spatial & Temporal extent

The output has the following spatial-temporal resolution and extent:

ParameterDescription
Spatial extent / country coverageEU Member states 27OECD countriesALL countries of the WORLD
Global, incl. individual EU countries, various EU aggregates (EU, Euro area, OMS, NMS, etc).
Spatial resolutionWorld-regions (supranational)National
Temporal extentShort-term (from 1 to 5 years)Medium-term (5 to 15 years)Long-term (more than 15 years)
Estimation data range: 1985-2013 for Euro area aggregate; 1995-2013 for individual countries. Simulation horizon: the model is simulated for several periods ahead to allow convergence.
Temporal resolutionQuarterly

Quality & Transparency

Quality

Model uncertainties

Models are by definition affected by uncertainties (in input data, input parameters, scenario definitions, etc.). Have the model uncertainties been quantified? Are uncertainties accounted for in your simulations?

yes
Possible

    Sensitivity analysis

    Sensitivity analysis helps identifying the uncertain inputs mostly responsible for the uncertainty in the model responses. Has the model undergone sensitivity analysis?

    yes
    Very often model versions are subject to sensitivity analysis.

      Have model results been published in peer-reviewed articles?

      yes
      There are many publications of the model in peer-reviewed journals.

        Has the model formally undergone scientific review by a panel of international experts?

        Please note that this does not refer to the cases when model results were validated by stakeholders.

        no

          Model validation

          Has model validation been done? Have model predictions been confronted with observed data (ex-post)?

          yes
          k-periods ahead behavior of the model variables is compared with historical observations.

            Transparency

            To what extent do input data come from publicly available sources?

            This may include sources accessible upon subscription and/or payment

            Entirely based on publicly available sources

            Is the full model database as such available to external users?

            Whether or not it implies a specific procedure or a fee

            no
            Taken from public sources.

              Have model results been presented in publicly available reports?

              Note this excludes IA reports.

              yes

              For details please refer to the 'peer review for model validation' documents in the bibliographic references

              Have output datasets been made publicly available?

              Note this could also imply a specific procedure or a fee.

              no

                Is there any user friendly interface presenting model results that is accessible to the public?

                For instance: Dashboard, interactive interfaces...

                no

                  Has the model been documented in a publicly available dedicated report or a manual?

                  Note this excludes IA reports.

                  yes
                  Model structure is typically documented in scientific publications (e.g. Ratto et.al 2009, Burgert et al. 2020).

                  Is there a dedicated public website where information about the model is provided?

                  yes

                  Is the model code open-source?

                  no

                  Can the code be accessed upon request?

                  no

                  The model’s policy relevance and intended role in the policy cycle

                  The model is designed to contribute to the following policy areas

                  • Economy, finance and the euro
                  • Employment and social affairs
                  • Taxation
                  • Trade

                  The model is designed to contribute to the following phases of the policy cycle

                  • Anticipation – such as foresight and horizon scanning
                  • Evaluation – such as ex-post evaluation
                  • Formulation – such as ex-ante Impact Assessments
                  • Implementation – this also includes monitoring

                  The model’s potential

                  QUEST III is a tool suitable for policy preparation and implementation. It is designed to analyze economic issues like the occurrence boom-bust cycles, the study of structural reforms (Lisbon process), fiscal policy, country debt stabilization and sustainability. Main policy areas requiring QUEST based analysis concern MIP (Macroeconomic Imbalance Procedure) assessments, EDP (Excess Deficit) procedures and debt sustainability analysis.

                  DG ECFIN uses QUEST III for macroeconomic policy analysis and research. Results of the studies feed into ECFIN policy repots. JRC supports DG ECFIN for the development of QUEST III, focusing on the estimation. JRC provides estimated versions of QUEST models for individual member states, used to support policy studies for macro-economic surveillance by DG ECFIN

                  Previous use of the model in ex-ante impact assessments of the European Commission

                  Use of the model in ex-ante impact assessments since July 2017.

                  2024
                  SWD/2024/63 final

                  Impact Assessment Report Part 1 Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Securing our future Europe's 2040 climate target and path to climate neutrality by 2050 building a sustainable, just and prosperous society

                  Lead by
                  CLIMA
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  E-QUEST (energy version of QUEST) has been used to complement the assessment of the macro-economic impacts of the energy and climate targets.

                  2021
                  SWD/2021/641 final

                  Impact assessment accompanying the document Proposal for a Council Directive: restructuring the Union framework for the taxation of energy products and electricity (recast)

                  Lead by
                  TAXUD
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  The model helped to assess the following impacts:

                  • EU Exports & imports
                  • Investment flows & trade in services
                  • Free movement of goods, services, capital and workers
                  • Competition
                  • Innovation for productivity/resource efficiency
                  • Budgetary consequences for public authorities
                  • Consumer's ability to benefit from the internal market or to access goods and services from outside the EU
                  • Economic growth and employment
                  • Investments and functioning of markets
                  • Macro-economic stabilisation
                  • Impact on jobs
                  • Impact on jobs in specific sectors, professions, regions or countries
                  • Indirect effects on employment levels
                  • Emission of greenhouse gases

                  2020
                  SWD/2020/245 final

                  Impact assessment accompanying the document Proposal for a Directive of the European Parliament and of the Council: on adequate minimum wages in the European Union

                  Lead by
                  EMPL
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  The model helped to assess the following impacts:

                  • Economic growth and employment
                  • Impact on jobs
                  • Wages, labour costs or wage setting mechanisms
                  • Inequalities and the distribution of incomes and wealth

                  2020
                  SWD/2020/176 final

                  Impact Assessment accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people

                  Lead by
                  CLIMA
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  QUEST is used for macroeconomic assessment.

                  2018
                  SWD/2018/307 final

                  Impact assessment accompanying the document Proposal for a Regulation of the European Parliament and the Council on: establishing Horizon Europe - the Framework Programme for Research and Innovation, laying down its rules for participation and dissemination and; Proposal for a Decision of the European Parliament and the Council on: establishing the specific programme implementing Horizon Europe - the Framework Programme for Research and Innovation and; Proposal for a Regulation of the European Parliament and the Council on: establishing the Research and Training Programme of the European Atomic Energy Community for the period 2021-2025 complementing Horizon Europe - the Framework Programme for Research and Innovation

                  Lead by
                  RTD
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  The model helped to assess the following impacts:

                  • Investment cycle
                  • Affects on individual Member States
                  • Stimulation of research and development
                  • Innovation for productivity/resource efficiency
                  • Economic growth and employment

                  2018
                  SWD/2018/297 final

                  Impact assessment accompanying the document Proposal for a Regulation of the European Parliament and of the Council on: the establishment of a European Investment Stabilisation Function

                  Lead by
                  ECFIN
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  The model helped to assess the following impacts:

                  • Budgetary consequences for public authorities
                  • Economic growth and employment
                  • Macro-economic stabilisation

                  2018
                  SWD/2018/282 final

                  Impact assessment accompanying the document Proposals for a Regulation of the European Parliament and of the Council on: the European Regional Development Fund and on the Cohesion Fund and; Proposal for a Regulation of the European Parliament and the Council on: a mechanism to resolve legal and administrative obstacles in a cross-border context and; Proposal for a Regulation of the European Parliament and the Council on: specific provisions for the European territorial cooperation goal (Interreg) supported by the European Regional Development Fund and external financing instruments

                  Lead by
                  REGIO
                  Run by
                  European Commission
                  Contribution role
                  baseline and assessment of policy options
                  Contribution details

                  The model helped to assess the following impacts:

                  • Economic growth and employment
                  • Investment cycle
                  • Affects on individual Member States
                  • Stimulation of research and development
                  • Innovation for productivity/resource efficiency

                  Bibliographic references

                  Studies that uses the model or its results

                  What drives the German current account? And how does it affect other EU member states? 

                  Published in 2015
                  Kollmann R, Ratto M, Roeger W, Int Veld J, Vogel L. What drives the German current account And how does it affect other EU member states. ECONOMIC POLICY 30 (81); 2015. p. 47-93. JRC88946

                  International Capital Flows and the Boom-Bust Cycle in Spain 

                  Published in 2014
                  Int Veld J, Kollmann R, Pataracchia B, Ratto M, Roeger W. International Capital Flows and the Boom-Bust Cycle in Spain. JOURNAL OF INTERNATIONAL MONEY AND FINANCE 48 (Part B); 2014. p. 314-335. JRC89811

                  Growth effects of structural reforms in Southern Europe: the case of Greece, Italy, Spain and Portugal 

                  Published in 2014
                  Varga, J., Roeger, W. & in’t Veld, J. Growth effects of structural reforms in Southern Europe: the case of Greece, Italy, Spain and Portugal; Empirica (2014) 41: 323. doi: 10.1007/s10663-014-9253-3

                  Fiscal Policy, Banks and the Financial Crisis 

                  Published in 2013
                  Kollmann R, Ratto M, Roeger W, In `T Veld J. Fiscal Policy, Banks and the Financial Crisis. JOURNAL OF ECONOMIC DYNAMICS and CONTROL 37 (2); 2013. p. 387-403. JRC75073

                  Automatic Fiscal Stabilisers: What They Are and What They Do 

                  Published in 2013
                  in’t Veld, J., Larch, M. & Vandeweyer, M. Automatic Fiscal Stabilisers: What They Are and What They Do; Open Econ Rev (2013) 24: 147. doi: 10.1007/s11079-012-9260-6

                  Effects of Fiscal Stimulus in Structural Models 

                  Published in 2012
                  Coenen, G., Erceg, C. J., Freedman, C., Furceri, D., Kumhof, M., Lalonde, R., … in’t Veld, J. (2012). Effects of Fiscal Stimulus in Structural Models. American Economic Journal: Macroeconomics, 4(1), 22–68. doi:10.1257/mac.4.1.22

                  The Recent Boom-Bust Cycle: The Relative Contribution of Capital Flows, Credit Supply and Asset Bubbles 

                  Published in 2011
                  Int Veld J, Raciborski R, Ratto M, Roeger W. The Recent Boom-Bust Cycle: The Relative Contribution of Capital Flows, Credit Supply and Asset Bubbles. EUROPEAN ECONOMIC REVIEW 55; 2011. p. 386-406. JRC62821

                  A model-based analysis of the impact of Cohesion Policy expenditure 2000–06: Simulations with the QUEST III endogenous R&D model 

                  Published in 2010
                  Varga, J., in 't Veld, J. A model-based analysis of the impact of Cohesion Policy expenditure 2000–06: Simulations with the QUEST III endogenous R&D model; Economic Modelling (2010) doi: 10.1016/j.econmod.2010.06.004

                  Fiscal consolidation in Germany 

                  Published in 2010
                  Roeger, W., in’t Veld, J. & Vogel, L. Fiscal consolidation in Germany; Intereconomics (2010) 45: 364. doi: 10.1007/s10272-010-0357-0

                  Modelling the Lisbon Strategy: Analysing Policies to Promote Knowledge Investment with an Endogenous Growth Model 

                  Published in 2009
                  Roeger, W., Varga, J. & Veld, J. Modelling the Lisbon Strategy: Analysing Policies to Promote Knowledge Investment with an Endogenous Growth Model; Comp Econ Stud (2009) 51: 520. doi: 10.1057/ces.2009.13

                  Global impact of a shift in foreign reserves to euros 

                  Published in 2009
                  Breuss, F., Roeger, W. & in’t Veld, J. Global impact of a shift in foreign reserves to euros; Empirica (2009) 36: 101. doi: 10.1007/s10663-008-9094-z

                  Peer review for model validation

                  Quantifying spillovers of coordinated investment stimulus in the EU 

                  Published in 2022
                  Pfeiffer, P., Varga, J., & in ’t Veld, J. (2022). Quantifying spillovers of coordinated investment stimulus in the EU. Macroeconomic Dynamics, 27(7), 1843–1865. https://doi.org/10.1017/s1365100522000487

                  E-QUEST: A multisector dynamic general equilibrium model with energy and a model-based assessment to reach the EU climate targets 

                  Published in 2022
                  Varga, J., Roeger, W., & in ’t Veld, J. (2022). E-QUEST: A multisector dynamic general equilibrium model with energy and a model-based assessment to reach the EU climate targets. Economic Modelling, 114, 105911. https://doi.org/10.1016/j.econmod.2022.105911

                  QUEST III: An Estimated Open-Economy DSGE Model of the Euro Area with Fiscal and Monetary Policy 

                  Published in 2009
                  Ratto M, Roeger W, Int Veld J. QUEST III: An Estimated Open-Economy DSGE Model of the Euro Area with Fiscal and Monetary Policy. ECONOMIC MODELLING 26; 2009. p. 222-233. JRC46465

                  Model documentation

                  QUEST III: An Estimated Open-Economy DSGE Model of the Euro Area with Fiscal and Monetary Policy 

                  Published in 2009
                  Ratto M, Roeger W, Int Veld J. QUEST III: An Estimated Open-Economy DSGE Model of the Euro Area with Fiscal and Monetary Policy. ECONOMIC MODELLING 26; 2009. p. 222-233. JRC46465

                  Other related documents

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