The Central Bank of Iceland has published a handbook documenting version 5.0 of its Quarterly Macroeconomic Model, which supports economic forecasting, policy simulations and monetary policy analysis. The update re-estimates and revises individual equations while retaining broadly similar overall model behavior and monetary policy transmission to previous versions. Key changes include extending most estimation periods through the fourth quarter of 2024, moving the base year for chain-linked volume data to 2015 and revising estimates of the neutral real interest rate, equilibrium real exchange rate and natural unemployment rate using eight models. The update also refines import demand, potential output, house prices, household income and fiscal accounting, and inflation expectations. It revises the consumption equation to reflect a stronger long-run wealth effect and lower interest-rate sensitivity, while five-year break-even inflation expectations now represent the forward-looking component of the inflation equation. The model contains 24 estimated behavioral relationships, 141 endogenous variables and 49 exogenous variables.
Central Bank of Iceland publishes handbook for version 5.0 of its quarterly macroeconomic model
The Central Bank of Iceland has published a handbook for version 5.0 of its core forecasting and policy simulation model. The update refreshes estimation periods and equilibrium measures and revises the treatment of imports, household income, consumption, potential output, house prices and inflation expectations while leaving the model’s overall behavior broadly unchanged.