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A Structural Macro-Econometric Model of the Maltese Economy

Author

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

Abstract

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

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    1. repec:zbw:bofitp:2004_013 is not listed on IDEAS
    2. Aaron G Grech, "undated". "Assessing employment in Malta," CBM Working Papers WP/01/2006, Central Bank of Malta.
    3. Warmedinger, Thomas & Vetlov, Igor, 2006. "The German block of the ESCB multi-country model," Working Paper Series 654, European Central Bank.
    4. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
    5. 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.
    6. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 42, European Central Bank.
    7. Gerhard Fenz & Martin Spitzer, 2005. "AQM – The Austrian Quarterly Model of the Oesterreichische Nationalbank," Working Papers 104, Oesterreichische Nationalbank (Austrian Central Bank).
    8. Hubrich, Kirstin & Karlsson, Tohmas, 2010. "Trade consistency in the context of the Eurosystem projection exercises - an overview," Occasional Paper Series 108, European Central Bank.
    9. Gabriel Fagan & Julian Morgan (ed.), 2005. "Econometric Models of the Euro-area Central Banks," Books, Edward Elgar Publishing, number 3918.
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    Citations

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    Cited by:

    1. Aaron G Grech & Noel Rapa, "undated". "Trends in Malta’s current account and their underlying causes," CBM Policy Papers PP/03/2016, Central Bank of Malta.
    2. William Gatt, "undated". "The determinants of household saving behaviour in Malta," CBM Working Papers WP/03/2014, Central Bank of Malta.
    3. 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.
    4. Ian Borg, "undated". "Fiscal Multipliers in Malta," CBM Working Papers WP/06/2014, Central Bank of Malta.
    5. Grech, Aaron George, 2015. "The macroeconomic impact of the income tax reductions in Malta," MPRA Paper 63902, University Library of Munich, Germany.
    6. Brian Micallef & Silvio Attard, 2015. "Assessing the macroeconomic impact of extending hotel height limitations," CBM Working Papers WP/01/2015, Central Bank of Malta.
    7. Kristian Orsini & Arian Perić, 2021. "Understanding the Croatian Export Boom," European Economy - Economic Briefs 065, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Aaron G Grech, "undated". "The evolution of the Maltese economy since independence," CBM Working Papers WP/05/2015, Central Bank of Malta.
    9. Noel Rapa, 2020. "A Sectoral Model Extension to STREAM," CBM Working Papers WP/08/2020, Central Bank of Malta.
    10. Aaron G. Grech (ed.), 2015. "The evolution of the Maltese Economy since Independence," CBM Ebooks, Central Bank of Malta, edition 1, number 02.
    11. William Gatt, 2016. "Time variation, asymmetry and threshold effect in Malta's Phillips curve," CBM Working Papers WP/02/2016, Central Bank of Malta.
    12. Aaron G Grech, "undated". "The possible impact of pension age changes on Malta’s potential output," CBM Policy Papers PP/01/2016, Central Bank of Malta.
    13. 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.
    14. 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.
    15. William Gatt & Owen Grech, "undated". "An assessment of the Maltese housing market," CBM Policy Papers PP/02/2016, Central Bank of Malta.

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    More about this item

    Keywords

    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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