ETLA macro model for forecasting and policy simulations

This paper presents a review of a quarterly macroeconomic model built for forecasting and policy simulation purposes at the Research Institute of the Finnish Economy (ETLA). The ETLA model can be labelled as a structural econometric macro model (also known as “SEM” or “policy model” in the recent literature). The ETLA model constitutes of 81 endogenous and 70 exogenous variables and hence at this stage, it is relatively small in size. The model encompasses Keynesian features in the short run, albeit particular attention is paid to its long-term equilibrium properties which are defined from supply side. Owing to these characteristics, its adjustment to external/policy shocks resembles the behavior of New Keynesian DSGE models with sticky prices and wages. The agents of the model are partly forward-looking.