Hungary in the NIGEM model
This paper presents a nationwide economy model for Hungary used by the National Bank of Hungary for analyzing the effects of world shocks, for quarterly forecasting exercises and other policy simulations. The study has two main goals: Firstly, we present the model for the Hungarian economy, developed in collaboration between the National Bank of Hungary and the National Institute of Economic and Social Research. The model is a one-sector aggregate economy model with a theoretically consistent supply side. A particular role is given to foreign direct investments in explaining the sources of growth both in the production process and foreign trade. Secondly, there is a brief discussion of the National Institute’s Global Econometric Model (NIGEM), to which the Hungarian model is linked. In this setup, we are also able to analyze the effect of world shocks on the domestic economy. For testing model properties, we present policy simulations for various shocks. A case study on the effect of the Russian crisis on Hungary is also discussed for the purpose of testing parameter adequacy.