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Simulations and sensitivity analyses with a medium-sized macro model of the Hungarian economy

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Biro A., Elek P., Vincze J.

Kozgazdasagi Szemle (Economic Review)

2007

vol. 54

issue 9

774-799

This paper analyses the most important mechanisms of the Hungarian economy using a medium-sized quarterly macroeconomic model developed jointly by the Economic Policy Department of the Ministry of Finance and the Institute of Economics of the Hungarian Academy of Sciences. After introducing the fundamental principles of modelling and the building blocks of the model investigated, within a scenario analysis, the authors present the effects of the main factors behind the macroeconomic and budgetary processes. The sources of uncertainty - defined in a broad sense - are categorized in three groups: change in the external environment (e.g. the exchange rate), uncertainties in the behaviour of economic agents (e.g. in speed of wage adjustment or extent of consumption smoothing), and economic policy decisions (e.g. the increase in public sector wages). The macroeconomic consequences of these uncertainties are shown not to be independent of each other. For instance, the effects of an exchange rate shock are influenced by the speed of wage adjustment.

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1 Kozgazdasagi Szemle (Economic Review)

1 2007

1 Biro A.

1 Elek P.

1 Vincze J.

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Simulations and sensitivity analyses with a medium-sized macro model of the Hungarian economy