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The First Computable General Equilibrium Model for Malta - A Project Successfully Accomplished by the Central Bank of Malta in Cooperation with the University of Macerata

In 2021, the Central Bank of Malta entered into a two-year cooperation agreement with the University of Macerata with the aim of developing a Computable General Equilibrium (CGE) model for Malta. This cooperation agreement has recently come to an end with the successful completion of the first CGE model for Malta, named MaCGE-MOD.

The development process of the model proceeded in three stages. In the first stage, the team, in collaboration with Dr Ian P. Cassar from the University of Malta, compiled the first Social Accounting Matrix (SAM) for the Maltese economy. The SAM records the value of all transactions involving commodities, activities and institutional sectors of the economy and serves as the source of data for the calibration of the model parameters. In the second stage, researchers from the University of Macerata and the Central Bank of Malta proceeded with the development and validation of the new CGE model. In the final stage, economists within the Economic Research Department of the Bank had the unique opportunity to undergo extensive theoretical as well as hands-on training on CGE models offered by the Macerata team.

MaCGE-MOD is a multi-input, multi-output and multi-sector general equilibrium model. It is highly disaggregated, modelling intra-sectoral flows of a total of 44 commodities and 44 activities together with the primary and secondary flows amongst 6 different institutional sectors.

MaCGE-MOD will complement the current model suite of the Central Bank of Malta by expanding its ability to understand the complex interactions in the economy that arise from the sectoral links that exist in the production process of the economy. Moreover, the detailed structure of the model will also make it possible to trace the economic effects of an underlying shock to movements in the circular flow of income among the different agents in the economy.

Apart from the development of new model, cooperation agreements with international institutions are crucial in broadening the links between the Central Bank of Malta and leading academic institutions. In this respect, following the conclusion of this successful cooperation agreement, the two parties look forward for more fruitful collaborations in the near future.

The documentation for MaCGE-MOD is available here.

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