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HERMES: Economic models in which energy plays a special role

A publication edited by the Commission describes the HERMES European system of medium-term, macrosectoral econometric models in which energy plays a special role as a production factor.

The energy problem has modified the economic relationship between the countries and econom...
A publication edited by the Commission describes the HERMES European system of medium-term, macrosectoral econometric models in which energy plays a special role as a production factor.

The energy problem has modified the economic relationship between the countries and economic zones in the world. Moreover, it has to be seen against the background of the structural changes that result from demographic pressure in the less developed countries, the evolution of lifestyles in the advanced industrialized societies, the relocation of industrial activities in the third world and the accelerated introduction of new technologies. Both the effects of the energy sub-system on the structure of the economy (relative prices, technology, factor substitution, balance of payments, exchange rates, investments) and the consequences of the structural shifts in the economy on the energy sub-system are of major interest to the policy maker.

Designed at the time of the second energy crisis, HERMES is now used in a radically different context. Its success has largely outstripped the framework of the initial national institutes which cooperated in its creation, since numerous other users have joined in the work of forecasting and variant simulation. The project is an example of the successful meeting of scientific development and economic reality: the series of models became operational with the evaluation of the Single European Market.

The different models are interlinked by a bilateral flow model, which describes for each product the trade between all the European Union Member States taken in twos. The United States, Japan and five economic zones are represented.

These models were developed in each of the Member States. Use of the system is either decentralized (by each team) or centralized (by the Commission). Despite the high costs involved, it was essential for models to be developed and used by institutes already well versed in economic studies and forecasts in their countries and with good knowledge of factual data and the peculiarities of each economy. This led to a HERMES network of 12 institutes using harmonized data and similar analysis instruments for their work, which greatly facilitates dialogue, exchange and cooperation at European level. Although the results are not completely harmonized and the various models show the specific nature of each institute, this diversity, while sometimes complicating the task of the reader to a certain degree, is enriching once it is controlled.

The studies presented in this 720-page publication are those incorporated in the models currently used. They include the HERMES model for the Member States and macroeconomic models for the Belgian, Dutch, French, German, Irish, Italian and UK economies, plus the results of macroeconomic model simulations on the completion of the internal market. Studies still at the research stage are not included.

HERMES was set up in 1981 on the initiative of the Commission's Directorate-General for Science, Research and Development (DG XII) under the RTD programme in the field of non-nuclear energy (1979-83) and continued under the subsequent non-nuclear energy programme (1985-1988) and the specific RTD programme in the field of non-nuclear energy JOULE I (1989-1992) and JOULE II (1991-1994).

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