Evaluating global macroeconomic models : a case study of MULTIMOD

This paper is a contribution to the understanding of global interconnections through the evaluation and validation of the capabilities and properties of MULTIMOD, a multiregional macroeconomic model, developed and maintained at the International Monetary Fund. The author finds the model relatively small and simple in its theoretical specification, but advanced in its modeling techniques, exemplified by its"forward looking"features. This property allows faster adjustment of all prices, including exchange rates and interest rates, than do conventional macro models. A major strength of the model is the effective transmission of policy changes across countries. MULTIMOD can also be used to discuss North-South issues. Simulation examples are presented for monetary and fiscal policy scenarios in the North (with their impacts on the developing economies), oil price shocks, and debt relief schemes.