A Multi-Scale System of Macroeconometric Models: the Inforum Approach

Abstract

The recent global crisis affected output, but the decline in international trade was even sharper, almost twice as big, so that in the literature it is referred as the Great Trade Collapse. Trade flows have transmitted the crisis through the world economy where international trade runs through much more intricate networks than in the past, involving a greater number of countries, firms, and products. All these relevant economic issues require a clear understanding of the possible positive and negative effects not only on the economy as a whole and on aggregate macroeconomic variables but especially on specific industries and commodities. This type of quantitative analysis can be pursued with several analytical tools and data. Macroeconometric models have a long-standing and remarkable tradition as a tool for analyzing the international transmission mechanism of shocks and policies and for forecasting their effects. In this paper, we present the INFORUM international linking system of models that includes a Bilateral Trade Model (BTM) and a set of multisectoral country models. The INFORUM international system of models is characterised by a detailed industry and commodity classification and the use of econometric equations for estimating the behaviour of economic variables and of bilateral import shares. Moreover, when the complete international system of models is linked through the bilateral trade model, simulation results include feedback effects from country models to all economies in the system through bilateral trade flows. Overall, this multi-scale system of models captures the heterogeneity across industries and countries and produces significant information for economic policy design.