Update of the quarterly model of the Bank of Spain

Abstract

This paper presents the update of the macroeconometric model used at the Bank of Spain for medium term macroeconomic forecasting of the Spanish economy, as well as for performing policy simulations. The many changes that the Spanish economy has experimented in the last years, and the new system of national accounts published by the national statistical office, suggested that a reestimation of the model was due. This paper presents such reestimation with newer data (up to the end of 2005), and includes some modifications that were deemed necessary in certain equations. The quarterly model of the Bank of Spain keeps a similar structure to its previous version

it is basically a demand-driven model. The Spanish economy is found, in general, more sensitive than in previous periods to changes in exogenous variables, especially to the financial conditions. The new model also shows changes in demographic trends, and presents an external sector less sensitive to changes in price-competitiveness