Central Banks and Macro Models

Over the past decade or so, all major central banks have developed quantitative, modern macroeconomic models for policy analysis. Central banks use a variety of models, of course, but this post will focus on central banks’ internal “dynamic stochastic general equilibrium” models — think of them as larger, more careful versions of the IS-LM or AD-AS model you learned in Intermediate Macro.

Dynamic stochastic general equilibrium (DSGE) models are fully-articulated artificial economies, populated by consumers, firms, a fiscal authority, and a central bank. Some of these models include a significant role for the banking, energy, or materials sectors; some include openness to international trade, while others analyze  a “closed” economy where international trade is neglected.  A typical medium-scale DSGE model might contain twenty to fifty equations. Some central banks then augment these DSGE models with a “periphery” of additional equations which capture elements that are outside the strict confines of the DSGE “core.” These models can be solved and used for forecasting exercises or policy analysis.

A short list of central bank models:

• Federal Reserve Board: SIGMA model
• Federal Reserve Bank of New York: Model, Code, Blog post
• European Central Bank: NAWM model, discussion post
• Bank of England: COMPASS model, blog post with useful related discussion.
• Bank of Canada: ToTEM II model
• Norgesbank: NEMO model, discussion slides
• Sveriges Riksbank: RAMSES II model, Code

The main point, for now, is to simply have a one-stop list of central bank models. I may go into their similarities and differences or discuss general modelling strategy at a later date. For even more macro models, the suite of codes in the Macro Model Data Base might be of interest.