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.

More information:

• The Global Multi-Country Model (GM): an Estimated DSGE Model for the Euro Area Countries

• Comparing post-crisis dynamics across Euro Area countries with the Global Multi-country model

• Financial spillover and global risk in a multi-region model of the world economy

• The euro exchange rate and Germany's trade surplus

• Euro Area and US external adjustment: The role of commodity prices and Emerging Market shocks

• Domestic versus foreign drivers of trade (im)balances: How robust is evidence from estimated DSGE models

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.

Since 2015 JRC is supporting DG COMP in the macroeconomic assessment of competition policy enforcements in the European Union using QUEST model based simulations. The analysis makes use of EU Competition Authority cartel and merger cases and simulates their macroeconomic impact.

For further references on QUEST model, see the Macroeconomic models webpage.

More information:

• Does EU Competition policy support inclusive growth?
• Macroeconomic model QUEST III (DG Economic and Financial Affairs)
• QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy
• Endogenous Housing Risk in an Estimated DSGE model of the Euro Area
• Fiscal policy, banks and the financial crisis
• Imbalances and rebalancing scenarios in an estimated structural model for Spain
• The recent boom–bust cycle: The relative contribution of capital flows, credit supply and asset bubbles
• Using a DSGE model to look at the recent boom-bust cycle in the US
• A comparison of structural reform scenarios across the EU member states - Simulation-based analysis using the QUEST model with endogenous growth

Related Content

Key publications

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

The post-crisis slump in the Euro Area and the US: Evidence from an estimated three-region DGSE model