eMPF Econometric Model of Public Finance

This paper presents the Econometric Model of Public Finance, eMPF. The model has been developed and maintained at the Polish Ministry of Finance to facilitate forecasting process, especially for the budget and convergence programme purposes, and to deliver scenario analyses. We present the particular blocks of the model and responses to some standard shocks. The eMPF model is a medium size quarterly macroeconometric model of the Polish economy. It was estimated on the seasonally adjusted data on the 1995-2010 sample. The model consists of 352 variables, of which 279 are endogenous and about 40 are explained by stochastic ECM type equations. The long run of the model is theory based and is derived from optimization conditions of the market participants. Microeconomic foundations of the long-run equilibrium impose constraints for dynamics of the model to force it to converge to the steady state. In the short run the model is demand driven with elasticities estimated to reflect historical path of the variables and rigidities in the economy. Taking into account the mix of economic theory and the willingness to fit the equations to the data, the eMPF model belongs to the so-called hybrid models family. There are two sectors identified in the model: the market sector and the general government sector, both summing up to the total economy according to the ESA95 methodology. Within the market sector two additional subsectors are recognised: households and companies, but only part of the institutional accounts is incorporated for these two subsectors. To fulfill the needs of the Ministry of Finance to prepare fiscal policy analyses, the model has quite detailed public finance block.