EU Science Hub

Macroeconomic analysis for monitoring EU economic stance

JRC provides scientific support to European Commission policy process and decision-making in relation to the broad area of the macroeconomic and fiscal surveillance. This is achieved by developing, simulating and estimating the macro-economic models GM and QUEST III. These models are jointly developed with and used by DG ECFIN for its macroeconomic policy assessments in the context of the European Semester. 

The GM model

The GM model is the EC Global Multi-country macro-economic model, jointly developed by the JRC and DG ECFIN since 2014 to complement the model QUEST to support the EC in its macroeconomic surveillance, monitoring and forecasting tasks. Since 2015 GM model is used to identify macroeconomic drivers of growth in the European Economic Forecast rounds.

GM 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.
The GM model is estimated with different multi-country configurations: GM2 model (EA- Rest-of-the-World - RoW model); (EA-US and RoW); GM3-EMU versions, which feature an individual Euro Area country under exam together with Rest-of-the-EuroArea (REA) and RoW.

The estimated versions of the GM model are used to strengthen the analytical framework for integrated surveillance in DG ECFIN. Focuses on historical shock decomposition and projections for macro aggregates and budgetary variables. The GM model is regularly applied in the context of Economic forecasts [Spring/Autumn rounds] and in general to support the EC in its macroeconomic surveillance and monitoring. 

The QUEST model

The JRC also supports DG ECFIN in the development of estimated versions of QUEST III, the dynamic stochastic general equilibrium model used by the Commission to analyse the status of the EU economy. QUEST is one of the analytic instruments DG Economic and Financial Affairs uses for monitoring the EU 2020 objectives and the impact of the flagships initiatives, in particular for the integrated surveillance of member countries economic stance, including their fiscal policy, budget imbalances, reform programmes, and overall sustainability of public finances. The QUEST III model has been estimated on euro area and US data, as well as for individual euro area member states, using Bayesian estimation methods.

QUEST III belongs to the class of Dynamic Stochastic General Equilibrium (DSGE) models that is now widely used by international institutions and central banks and that is the workhorse of modern macroeconomic modelling. QUEST III is used by DG Economic and Financial Affairs for macroeconomic policy analysis. DSGE models have rigorous microeconomic foundations derived from utility and profit optimisation and include frictions in goods, labour and financial markets.

For further references, see the Macroeconomic models webpage.