Implementation of a New Macroeconomic Modelling Concept to Support Research and Innovation Policy

In order to support the development, analysis and evaluation of R&D policy at the EU level this study elaborates the extension of two existing models that are used within the European Commission: HETFIGE and RHOMOLO. HETFIGE is a heterogeneous firms general equilibrium model for a closed economy. RHOMOLO is a dynamic spatial computable general equilibrium model. The HETFIGE model is extended with an open-economy module. The RHOMOLO model is extended with two modules: scale-free endogenous R&D driven growth and the introduction of heterogeneous firms. The model extensions provide a better and more realistic understanding of the impact of innovation policies such as the effects of R&D subsidies and tax rebates under various macroeconomic conditions including global crises, such as COVID-19 pandemic, interest rate increases, trade shocks. The calibration of the models and the respective modules is based on an extensive set of microeconomic and macroeconomic data, placing the models on a solid empirical foundation. The study concludes with an overview of policies in the field of R&D and other for which the model extensions can be readily used. Perspectives for future research and additional potential policy applications that can be made on the basis of the model extensions are presented as well.