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Content archived on 2024-06-18

Modeling and Implementation of Optimal Fiscal and Monetary Policy Algorithms in Multi-Country Econometric Models

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New economic models to inspire better policies

Sophisticated modelling techniques and tools have been developed to help policymakers create better fiscal policies and stabilise the economy.

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With the economic crisis affecting practically all corners of the world, the EU is seeking high-tech ways to strengthen its fiscal policy and enhance financial stability. The EU-funded MONFISPOL (Modeling and Implementation of Optimal Fiscal and Monetary Policy Algorithms in Multi-Country Econometric Models) project worked on developing powerful modelling scenarios that assess macroeconomic policy in unique situations, particularly in monetary unions such as the EU. Project partners developed novel numerical tools and computational algorithms to further academic research in the field of fiscal and monetary policy, as well as to assist policymaking. They investigated how good fiscal policy can smooth shocks in the EU, where many countries suffer from high financial debt, taking into account the different labour and financial markets involved. To develop its models, the project team closely analysed the international transmission of shocks and studied different exchange rate arrangements with respect to macroeconomic volatility and stability. It identified the assets required to help governments smooth the shocks they encounter. In addition, the team analysed economies where consumption was financed through foreign lending, underlining the limitations of inflation-related strategies for industrialised countries. Armed with its findings and results, the project developed analytical and computing tools for simulating and estimating models under optimal policy. Other activities involved a systematic review of related literature and the preparation of a database of macroeconomic models used in policymaking institutions worldwide. MONFISPOL also developed specific macroeconomic models that could help policymakers reach optimal decisions regarding fiscal or monetary policy. These newly generated models shed light on the impact of frictions in the labour market, post-crisis fiscal and monetary accommodation, optimal debt management, economic stabilisation policies and macroeconomic analysis. In this context the team produced a database with 30 different economic models, which were made available online and could provide excellent support for policymakers. The results were disseminated through several workshops, a final project conference and scientific papers, supported by open-source software and a lively online community. Models and tools produced by MONFISPOL represent a solid step forward in producing better macroeconomic policies and stabilising Europe's economy during economic difficulties.


Fiscal policies, economic crisis, MONFISPOL, monfispol, monetary policy, monetary unions

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