WIFO-Macromod

Medium-term macroeconomic forecasting for Austria

The WIFO-Macromod is used for medium-term macroeconomic forecasting and policy simulation for Austria. It describes the dynamics of key aggregate demand components on an annual basis, while allowing for short- to medium-term labour and goods market disequilibria. Supply-side elements of the model include potential output estimated using the European Commission's production function approach. The model links domestic markets, external trade, the labour market, and the price-wage system to the public sector through taxes and government expenditure. Behavioural equations are estimated via error correction methods, targeting long-run equilibrium relationships while permitting cyclical deviations.

The WIFO-Macromod is used for the WIFO medium-term forecast and to estimate the macroeconomic effects of economic policy measures.

The WIFO-Macromod describes the dynamics of the main components of aggregate demand on an annual frequency and allows for short- to medium-term imbalances in labour and goods markets. The demand side is supplemented by supply-side estimates of trend output obtained using the production function approach in accordance with the method specified by the European Commission. The model shows the most important relationships between the domestic market and the external economy, the labour market, and the price-wage system and links them to the public sector via government spending and taxes. Key behavioural equations are estimated using an error correction approach, which targets long-term relationships between several variables but allows for short-term (e.g. business cycle) deviations.

The model covers government revenue and expenditure. Revenue is determined endogenously: either explicitly through the dynamics of the tax base and the rates, or the tax revenue is determined with reference to a macroeconomic variable. The dynamics of public debt is determined by the development of the budget balance. The interest service is determined via the implicit interest rate of the existing debt and the structure of the new debt.