The new Danish macroeconomic model MAKRO

29-11-2017

MAKRO Anders Kronborg Grane Høegh Joao Ejarque Martin Bonde Peter Stephensen

Preliminary documentation of DREAM's new macroeconomic model MAKRO. When the model has been developed, it must be used for projections of the Danish economy in the medium and long term and for impact assessments of economic policy measures. Furthermore, the model must integrate the government's short-term business cycle forecast.

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Abstract

The Danish ministries of finance and economic affairs have set up an independent working group with the purpose of building a new macroeconomic model based on up-to-date developments both in the academic literature and in applied work internationally. The name of the new model is MAKRO.

The development project was launched in the spring of 2017 and will last for 3 years, under the auspices of the Danish research institute DREAM. MAKRO must provide a sufficiently detailed framework for the ministries’ combined short- and long term projections. These projections are used to assess the medium term budgetary outlook and the sustainability of fiscal policy, taking into account changes in fiscal policy within the planning horizon (currently 2025, after which fiscal policy is kept “neutral”) and long term demographic developments (until year 2100). Thus, the new model has to be a relatively large-scale macroeconomic model that is both theoretically well-founded and empirically based.