STREAM : a structural macro-econometric model of the Maltese economy

Abstract

This paper presents the third version of the Central Bank of Malta’s core macro-econometric model of the Maltese Economy, STREAM (Structural and TRaditional Econometric model for Malta). It is a traditional structural model built around the neo-classical synthesis. Behavioural equations are estimated in error-correction form on the basis of quarterly data spanning from 2000Q1 to 2013Q4. Economic agents are assumed to have adaptive expectations. The novelty of the model is that it contains fully fledged fiscal and financial blocks, which is uncommon in traditional structural models. Given both the strong links these sectors share with the broader economy, as well as the substantial influence they have on each other, it is ideal to model them within the same framework. This third version of the model includes two key upgrades when compared to the previous version: (i) it has been extended to include an even richer financial block, and (ii) has been re-estimated using more recent European System of Accounts (ESA) 2010, chain-linked data. Simulation results for six shocks illustrate the properties of the updated model and suggest that its mechanics are plausible from both a theoretical and empirical standpoint.