Grant for the Development of a Macroeconomic Model

The Ministry of Finance's macro-modeling toolbox needs enhancement. This project aims to develop an analytical tool for consistent and reliable economic forecasts, assess the impact of policy changes on key economic indicators (such as value added, employment, unemployment, productivity, and inflation), and analyze the effects of policy changes on public finances, including tax revenue. While a single macro-model to meet all these needs is unlikely, CentAR's team has identified several promising solutions for the Ministry of Finance. In collaboration with the Ministry, we will select and develop the most suitable solutions. Our team has significant experience in model building, including a migration revenue and cost simulation model, an Estonian pension system microsimulation model, and the C-19 macroeconomic model for assessing policy impacts. To strengthen our team's theoretical knowledge, we have involved Raul Eamets, a long-time member of the Estonian Fiscal Council and a professor of macroeconomics at the University of Tartu. We have also reserved budget funds for additional external experts. Ministry of Finance employees are considered part of our team and will be involved in model development to ensure long-term usability. Based on our extensive experience, our proposal includes a plan to finalize the model development in collaboration with the Ministry of Finance after analyzing all possibilities and gathering sufficient information. The proposal's terms of reference support this approach by prioritizing the identification of client needs.