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Economy and Finance

The Global Multi-country (GM) model

DG ECFIN and the JRC jointly develop the GM model. The model complements DG ECFIN's QUEST model in macroeconomic surveillance, monitoring, forecasting, and research.

Like QUEST, GM belongs to the class of New-Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. These models are core workhorses in international institutions and central banks as well as academic research.

The GM model offers flexible multi-country configurations. A GM2 version features the euro area (EA) and the rest-of-the-world (RoW); GM3-EMU versions focus on one of the four largest euro area economies together with rest-of-the-EA and the RoW; the GM3 model covers the EA, the US, and the RoW.

Bayesian estimation techniques combine a micro-founded model structure useful for policy analysis with a good probabilistic description of the observed data and forecasting performance. Recent extensions focus on macroeconomic nonlinearities, energy price dynamics, and the economic impact of the pandemic.

  • Since 2015, the GM model is regularly applied at all stages of DG ECFIN's forecast. For example, it assesses revisions of external assumptions (such as oil prices) or provides alternative projections such as upside and downside scenarios during the pandemic. It also provides projections for macroeconomic aggregates and fiscal variables.
  • The GM model is used for shock decompositions, for example, to assess the main drivers of growth, inflation, and imbalances in historical data and current economic forecasts.
  • GM-based results have been published in peer-reviewed academic journals, fostering links to academia and the research community.

GM bibliography