The Bank for International Settlements published a working paper introducing the BIS Multisector Model (BIS-MS), a dynamic stochastic general equilibrium model designed to study macroeconomic dynamics in a multi-sector production network across multiple countries. The release positions BIS-MS as a platform for analysing sectoral interdependencies, cross-industry shock transmission and alternative monetary policy strategies, supported by an accompanying toolbox for scenario simulation. BIS-MS can be calibrated to input-output data for more than 80 economies and is implemented with 16–20 sectors depending on data source. The calibration relies on OECD Inter-Country Input-Output tables, Asian Development Bank Multi-Regional Input-Output tables and US Bureau of Economic Analysis input-output information, with sectoral employment data used to pin down labour supply. The model features sector-specific nominal rigidities and is used to compare monetary policy rules including headline inflation targeting, core inflation targeting (services inflation) and average inflation targeting over an eight-quarter horizon. Illustrative simulations include a temporary 25% increase in carbon-intensive energy prices (modelled via mining and manufacturing shocks lasting four quarters and decaying at 50% per quarter), where the paper reports stronger inflation and output responses in economies with larger mining or manufacturing sectors (notably Thailand, the Philippines and Australia) and smaller effects in the euro area and United States; for the United States, headline inflation targeting produces a sharper initial rate rise but smaller and less persistent output losses than average inflation targeting, with core inflation targeting falling between the two. A second application models a permanent 25% increase in carbon-intensive energy prices phased in over 10 years and examines how different assumptions about real-time estimates of potential output change the transition dynamics. Under a linear-trend estimate of potential output, policy is persistently accommodative relative to the true supply shift and inflation stays elevated during the transition, while a real-time estimate produces initial deflationary pressures and a more restrained monetary response; cross-country differences again track exposure to mining and manufacturing in the production network.
Bank for International Settlements 2025-10-09
Bank for International Settlements publishes BIS Multisector Model for multi-country production network DSGE analysis
The Bank for International Settlements introduced the BIS Multisector Model (BIS-MS), a dynamic stochastic general equilibrium model for analyzing macroeconomic dynamics in a multi-sector production network across over 80 economies. BIS-MS facilitates the study of sectoral interdependencies, shock transmission, and monetary policy strategies, with simulations showing varied inflation and output responses to energy price shocks. The model uses input-output data from sources like the OECD and features sector-specific nominal rigidities to compare monetary policy rules.