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SEAM: A Small-Scale Euro Area Model With Forward-Looking Elements

Author

Listed:
  • José Brandão de Brito

Abstract

This paper presents a small-scale estimated macro model for the euro area (SEAM) designed primarily to generate forecasts and to evaluate the dynamic response of the economy to unanticipated and anticipated shocks. One crucial feature of SEAM is the presence of forward-looking elements, which makes the model forecasts more robust to the 'Lucas critique', since it allows economic decisions to be moulded by the future impact of 'surprise' policy actions. In what concerns the reliability of the model-simulations, the inclusion of forward-looking behaviour enriches the dynamics of the response of the model's endogenous variables to exogenous shocks. Although the SEAM does not have the richness of full-scale macroeconometric models, as apparent interalia, by the absence of a steady-state analogue and also of some relationships important for a better characterisation of the euro area economy, the model has been shown to deliver reasonable forecasts and responses to shocks that are consistent with conventional wisdom.

Suggested Citation

  • José Brandão de Brito, 2005. "SEAM: A Small-Scale Euro Area Model With Forward-Looking Elements," Working Papers w200501, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200501
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    References listed on IDEAS

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    More about this item

    JEL classification:

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

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