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A Structural Macro-Econometric Model of the Maltese Economy


  • Grech, Aaron George
  • Grech, Owen
  • Micallef, Brian
  • Rapa, Noel
  • Gatt, William


This paper presents a structural macro-econometric model of the Maltese economy developed at the Modelling & Research Office of the Central Bank of Malta during 2012. This model is small-scale, consisting of 19 behavioural equations (estimated on quarterly data from 2000 to 2011) and 130 identities. There are 33 exogenous variables, mostly economic variables for trading partners, commodity prices, demographic developments and fiscal variables. The model is built around the neoclassical synthesis, with sluggish adjustment of wages and prices in the short run and also some inertia of real variables in response to shocks. Economic agents are assumed to have adaptive expectations. There are four blocks in the model. The supply block is composed of a Cobb-Douglas production function and a demand for labour equation. The aggregate demand block has six behavioural equations explaining the components of real GDP. The wage/price block includes four equations for the aggregate demand components of real GDP, a private wage function and a house price equation. The financial block models consumer credit and mortgage credit, with three other equations determining the pass-through of the policy rate to lending rates. This paper also presents the economic impact of four simulated shocks: an increase in the policy rate, a rise in oil prices, an appreciation of the euro against the US dollar and higher world demand. The simulations confirm that the impact of monetary policy is weak in Malta while that of a change in foreign demand is quite strong. The exposure of the Maltese economy to shocks in oil prices and in the value of the US dollar also appears to be relatively significant. This paper is meant to constitute an intermediate stage in the structural model’s development. In future there will be further refinements, such as an enhanced integration of the supply side, the inclusion of an endogenous fiscal block, a more detailed financial block and further sectorial disaggregation.

Suggested Citation

  • Grech, Aaron George & Grech, Owen & Micallef, Brian & Rapa, Noel & Gatt, William, 2013. "A Structural Macro-Econometric Model of the Maltese Economy," MPRA Paper 46128, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:46128

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    References listed on IDEAS

    1. Aaron G Grech, "undated". "Assessing employment in Malta," CBM Working Papers WP/01/2006, Central Bank of Malta.
    2. Warmedinger, Thomas & Vetlov, Igor, 2006. "The German block of the ESCB multi-country model," Working Paper Series 654, European Central Bank.
    3. Dimitrios Sideris & Nicholas G. Zonzilos, 2005. "The Greek Model of the European System of Central Banks Multi-Country Model," Working Papers 20, Bank of Greece.
    4. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
    5. Vetlov, Igor, 2004. "The lithuanian block of the ECSB multi-country model," BOFIT Discussion Papers 13/2004, Bank of Finland, Institute for Economies in Transition.
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    Cited by:

    1. Ian Borg, "undated". "Fiscal Multipliers in Malta," CBM Working Papers WP/06/2014, Central Bank of Malta.
    2. Grech, Aaron George, 2015. "The macroeconomic impact of the income tax reductions in Malta," MPRA Paper 63902, University Library of Munich, Germany.
    3. William Gatt, 2016. "Time variation, asymmetry and threshold effect in Malta's Phillips curve," CBM Working Papers WP/02/2016, Central Bank of Malta.
    4. Ian Borg & Germano Ruisi, 2018. "Forecasting using Bayesian VARs: A Benchmark for STREAM," CBM Working Papers WP/04/2018, Central Bank of Malta.
    5. Brian Micallef & Silvio Attard, 2015. "Assessing the macroeconomic impact of extending hotel height limitations," CBM Working Papers WP/01/2015, Central Bank of Malta.
    6. William Gatt, "undated". "The determinants of household saving behaviour in Malta," CBM Working Papers WP/03/2014, Central Bank of Malta.
    7. Olofin, S.O. & Olubusoye, O.E. & Mordi, C.N.O. & Salisu, A.A. & Adeleke, A.I. & Orekoya, S.O. & Olowookere, A.E. & Adebiyi, M.A., 2014. "A small macroeconometric model of the Nigerian economy," Economic Modelling, Elsevier, vol. 39(C), pages 305-313.
    8. Aaron G Grech, "undated". "The evolution of the Maltese economy since independence," CBM Working Papers WP/05/2015, Central Bank of Malta.
    9. Owen Grech & Noel Rapa, 2016. "STREAM: A structural macro-econometric model of the Maltese economy," CBM Working Papers WP/01/2016, Central Bank of Malta.
    10. Reuben Ellul, 2018. "Forecasting unemployment rates in Malta: A labour market flows approach," CBM Working Papers WP/03/2018, Central Bank of Malta.
    11. Aaron G. Grech, "undated". "An estimate of the possible impact of lower electricity and water tariffs on the Maltese economy," CBM Working Papers WP/01/2014, Central Bank of Malta.
    12. repec:mlt:ebooks:02 is not listed on IDEAS

    More about this item


    Macro-econometric modelling; Malta;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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