IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

QUEST II. A Multi-Country Business Cycle and Growth Model

Listed author(s):
  • Werner Roeger
  • Jan in 't Veld

QUEST was designed to analyse the economies in the Member States of the European Union and their interaction with the rest of the world. The paper presents a new version of the QUEST model which is now considerably modified with respect to its theoretical structure. It first presents a model description for the following sectors: household behaviour, firm behaviour and government. Then, it proposes the markets and prices equations. The second section contains standard simulations. It first considers monetary policy and fiscal policy shocks, then an example of a productivity shock.II/511/97-ENQUEST was designed to analyse the economies in the member states of the European Union and their interactions with the rest of the world, especially with the United States and Japan. The focus of the model is on the transmission of the effects of economic policy both on the domestic and the international economy. The model was primarily constructed to serve as a tool for policy simulation; less emphasis was put on its ability to serve as a forecasting tool. Given the wide coverage of the model it must necessarily be highly aggregated. A high degree of aggregation and foundation of the specification in current macroeconomic theory also helps in interpreting and understanding the results of the simulations. Finally simplicity also facilitates the solution of the model and reduces the time and memory requirements of the computer-simulations. The new model contains structural models for the EU member states, the US and Japan and distinguishes 10 additional countries/regions in trade feedback models in order to model trade interactions with the rest of the world.Compared to the former version of the QUEST model, which was presented in European Economy No. 47 (1991), the new model is now considerably modified with respect to its theoretical structure. The previous version of QUEST was deeply rooted in the Keynesian tradition of econometric model building, strongly stressing the demand side of the economy and modelling consumer and investment behaviour in a backward looking fashion. In the new version an attempt was made to base the behavioural equations more strongly on principles of dynamic optimisation of private households and firms. That makes the model substantially more forward looking. Also the supply side is now more explicitly modelled. The present model is also closed with respect to stock-flow interactions. Those stock variables which can be identified on a macroeconomic level such as physical capital, net foreign assets, money and government debt are endogenously determined and wealth effects are allowed to influence savings, production and investment decisions of private households, firms and the government. Moreover, financial linkages between national economies are now more explicitly modelled. In the current version it is assumed that assets determined in different currencies are perfect substitutes - up to an exogenous risk premium. Consistent modelling of international trade and financial linkages also require that at each instant two adding-up constraints hold: trade balances and net foreign asset positions sum to zero. Also the long run properties of the model are now systematically explored.Apart from simulations related to the Commission's short and medium term projections, the model has been intensively used to analyse the impact of the Maastricht criteria on growth and employment and the long run effects of fiscal consolidation and structural reforms in Europe (e.g. Bayar et al., 1997a). Related to this, the model was used to study the impact of monetary policy on the success of government expenditure cuts (Roeger and in 't Veld, 1997a), and the macroeconomic effects of various tax reforms (Roeger and in 't Veld, 1997b) and VAT harmonisation (Bayar, Roeger and in 't Veld, 1997). The model has also been used to assess the employment and growth effects of the Trans European Transport Networks (European Commission, 1996), while the models for Greece, Ireland, Portugal and Spain have been used to look at the macroeconomic effects of the Structural Funds (Roeger, 1996b).

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers 2008 - 2015 with number 123.

in new window

Length: 74 pages
Date of creation: Oct 1997
Handle: RePEc:euf:ecopap:0123
Contact details of provider: Postal:
Inter-institutional relations and communication Unit, B-1049 Brussels

Fax: +32 2 298.08.23
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  2. Peter Howitt, 1988. "Business Cycles With Costly Search and Recruiting," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 147-165.
  3. Werner Roeger & Jan Veld & Lukas Vogel, 2010. "Fiscal consolidation in Germany," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 45(6), pages 364-371, November.
  4. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
  5. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
  6. van Ours, J.C. & Ridder, G., 1992. "Vacancies and recruitment of new employees," Other publications TiSEM 9acc708a-0885-46a2-aef5-7, Tilburg University, School of Economics and Management.
  7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  8. Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 711-734, May.
  9. van Ours, Jan & Ridder, Geert, 1992. "Vacancies and the Recruitment of New Employees," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 138-155, April.
  10. repec:fth:harver:1530 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0123. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.