An area-wide model for the euro area

This paper presents a quarterly estimated structural macroeconomic model for the euro area, the AWM, which is a medium-sized model that treats the euro area as a single economy. The model is designed to have a long-run equilibrium consistent with neo-classical economic theory while the short-run dynamics are largely demand-driven. The current version of the AWM is mostly backward-looking and is largely estimated rather than calibrated. A general overview of the structure of the model and of its long-run and short-run properties is given, with particular emphasis on the steady state properties, and a review of key equations. Results from two illustrative simulations are provided: a fiscal expenditure shock and a change in interest rates, with and without policy responses, respectively.