GEM : A new international macroeconic model

- 3 - I. INTRODUCTION 1. Over the last two years, the staff has been developing a new multi-country 1macroeconomic model called the Global Economy Model (GEM). An obvious question is why such a model is needed, given that the Fund’s existing model, MULTIMOD, also focuses on interdependence across countries. This paper answers this question by explaining how GEM differs from its predecessor, and outlining how these new features can improve the Fund’s policy analysis. The paper is aimed at the general audience and avoids technical detail. It comprises five sections, this introduction, a second section outlining the motivation, structure, strengths, and limitations of the model, and a third comprising a more detailed discussion of three simulation exercises that have been completed. Section four looks at areas in which development of the model is currently underway, while the final section provides a more general discussion of GEM’s future path. Some issues for discussion conclude the paper. 2. To provide a foretaste, GEM is an early example of a large international macroeconomic model built using recent economic research based on an explicit microeconomic framework in which consumers maximize utility and producers do the same with profits. In particular, the integration of domestic supply, demand, trade, and international asset markets in a single theoretical structure allows transmission mechanisms to be fully articulated, providing a ...