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Antonella Rancan and Francesco Sergi, Modelling Europe. A History of Multi-Country Models at the European Commission (1970-2005)

Ivo Maes
p. 147-150
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Antonella Rancan and Francesco Sergi, Modelling Europe. A History of Multi-Country Models at the European Commission (1970-2005), Cham: Palgrave Macmillan, 2024, xvii + 147 pages, 978-303163090-3

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Crédits : Palgrave Macmillan

1In his farewell address, when he left the European Commission in 1983, Tommaso Padoa-Schioppa, observed that, “European integration is like a clock. When you look at it, the lancets look like they are not moving at all. But, beyond the lancets, there are all the clockwork mechanisms, which run and move continuously; they are what make the lancets slowly, invisibly move, from one hour to the next hour. Our role, within European institutions, is like being those clockwork mechanisms” (testimony by Giovanni Laina, quoted by Rancan and Sergi, 134). The aim of this book, Modelling Europe. A History of Multi-country Models at the European Commission (1970-2005) is to investigate some of the clockwork mechanisms of the European Commission, focusing on the macroeconometric modelling experience at DG II, the Directorate General for Economic and Financial Affairs (the economic service of the European Commission). The authors, Antonella Rancan and Francesco Sergi, are distinguished historians of economic thought with a keen interest in macroeconomic theory and economic modelling, which comes also to the fore in this volume.

2The book is composed of five chapters: “Modelling Europe: Introduction”, “European Macroeconometric Modelling: The Early Years”; “The EUROLINK Experience (1978-1983)”; “Beyond EUROLINK: COMPACT and the QUEST Series”; and “Lesson for the History of International Macroeconomics: Multi-Country Models and Linkage Systems, Their Challenges and Opportunities”.

3The first chapter, “Modelling Europe: Introduction”, provides a general overview and presents the institutional framework in which DG II economists have been developing their models. The authors stress the importance for DG II of multi-country models, which “should have been capable of studying the macroeconomic interaction between the EEC Member States and of providing insights about the effects of coordinating (or not) national economic policies” (2). They further elaborate on the differences between multi-country and single-country models (which treat all foreign countries as an exogenous “rest of the world”). By contrast in a multi-country model, “national economies are related by mutually determined variables. Thus, such models provide a comprehensive account of the mechanisms at play within international macroeconomic relationships, and, thus, highlight the channels throughout which national economies and national policies can affect (or be affected) by other countries’ dynamics” (2). These types of multi-country models are then used by international institutions, like the European Commission, to analyse the interaction of economic policies in different countries. Of crucial importance in the book is further the distinction between two types of methodological approaches to multi-country models: the centralised and the decentralised approaches (9). In the decentralised approach, different existing single-country models, built often by different national teams, are taken and combined into a multi-country model. In the centralised approach very similar (if not identical) models are developed, often by the same team of modellers (and then combined into a multi-country model). In both approaches, for combining the different national models into a multi-country model, a “linkage system” is needed. This consists of a set of equations describing how national economic variables are affected by foreign economic variables, and vice versa.

4In the second chapter, “European Macroeconometric Modelling: The Early Years”, a comparative European perspective is presented on the history of macroeconometric modelling in Europe in the 1960s and early 1970s, with a focus on three countries: Italy, France and Belgium. The chapter highlights the tensions and cross-fertilisations between national traditions of macroeconomic modelling (like the attention to income distribution in Italy and disequilibrium models in France and Belgium) and the US based approach to large-scale macroeconometric modelling. Much attention is given to Project Link, the modelling initiative led by the later Nobel Laureate Lawrence Klein, which was hosted at the Wharton School of the University of Pennsylvania. The purpose of Project Link was to build a multi-country model covering the world economy (based on the decentralised approach). It would play a crucial role in forming a community of econometric model builders and developing important networks among model-builders.

5The third chapter, “The EUROLINK Experience (1978-1983)”, focuses on the early experience of macroeconometric modelling at the European Commission, when a decentralised approach (based on existing national econometric models) was followed. However, the experience was not very successful. Indeed, DG II had significant difficulties in fitting the heterogeneous national models together in a multi-country model. Moreover, due to its very detailed character, EUROLINK was extremely difficult to understand and use (77).

6The next chapter, “Beyond EUROLINK: COMPACT and the QUEST Series”, covers the period from 1983 to 2005. During this period, DG II established a permanent Macroeconomic Modelling Unit. The first models developed by DG II economists very much reflected the disequilibrium approach, which was very important in France and Belgium in the postwar period. In the 1990s, when also a new generation of model builders arrived, the focus shifted, in line with developments in the academic world and among other international institutions and central banks, to forward looking dynamic models based on microfoundations. In the conclusion, the authors also note a certain similarity in methodological approach between DSGE models and the centralised approach in multi-country modelling: “The appearance, at the end of the 1990s, of DSGE multi-country models would thus be seen as a form of methodological consistency between the representative agent principle, used for closed-economy macroeconometric analysis, and the centralised approach in multi-country modelling.” (139).

7The fifth chapter, “Lesson for the History of International Macroeconomics: Multi-Country Models and Linkage Systems, Their Challenges and Opportunities”, focuses on the linkage systems, a core concern of modellers at an international institution like the European Commission. The authors further emphasise that researchers at the European Commission produced original contributions to economic theory in this area. Initially, the focus was very much on modelling the trade interdependencies. Monetary aspects were relatively neglected until the 1980s. However, the authors also observe that modellers did not receive much help from monetary and international economics, as there was also no consensus in the academic community on how to model exchange rates and capital movements in these times (94).

8In their concluding chapter, the authors focus on three paths for further research about the history of multi-country modelling: an investigation of the dynamics of Project LINK (Lawrence Klein’s project to link different national econometric models), in order to better understand the specificity of European multi-country modelling; a broader look at the heterogeneous form of economic expertise at the European Commission, also to explain why the model-based expertise remained marginal for several years; and a more in-depth history of international macroeconomics.

9This volume offers an excellent overview of econometric model-building at the European Commission. It puts the model-building at the Commission quite well in the broad evolution of econometric model-building (one could discuss whether more attention could have been given to model building in other European countries like Germany or the Netherlands). More attention could also be given to the general structure of DG II and the other types of economic expertise which DG II was providing. At first sight I did not see an organigram of DG II. For instance, after the reorganisation of DG II by Tommaso Padoa-Schioppa in 1980, DG II consisted of four Directorates: National Economies; Economic Structures and Community Policies; Monetary Matters; and Macroeconomic Research and Policy. This last directorate consisted of five units, of which the modelling unit was one (the others concerned analysis of the European Community economy, short-term economic forecasts, business cycle surveys, and medium-term economic forecasts). While the focus in this book is on the multi-country models and the economists who were building these models, they constituted only one of the about 20 units of DG II.

10In this volume the focus has been on econometric model-building at the European Commission. An interesting, but admittedly not easy issue, which the authors identify also as a project for future research, is the use and relevance of economic expertise, not only macroeconometric modelling, but the value and relevance of economic expertise in general. This is of a topic of great importance and practical relevance, certainly in times like today when populism is growing. The questioning of economic expertise is not always without reason, as illustrated by the recent experience that most economists and economic forecasters did not see the upsurge of inflation in 2021 and 2022. One can also remember the famous question by the late British Queen Elizabeth, why nobody had noticed the Great Financial Crisis coming. One might argue that some Cassandras, like Alexandre Lamfalussy, Nouriel Roubini or Bill White had seen the great financial crisis coming (Maes, 2023). This is certainly an argument in favour of a pluralist approach towards economic expertise, with also a role for historical research, which can offer distance and a wider variety of experiences.

11On the whole, this book offers an excellent overview of multi-country modelling at the European Commission. The book is very well written and very didactic. It also indicates paths for further research.

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Bibliographie

Maes, Ivo. 2023. “Economic Research at Central Banks: Are Central Banks Interested in the History of Economic Thought?” In Mauro Boianovsky, Germán Feldman, Ivo Maes, Bertram Schefold (Chair), and Carl Christian von Weizsäcker, Applications of Lessons from the History of Economic Thought to Actual Policy Problems: Roundtable to Celebrate the 25th ESHET Conference at Padova, June 2022. The European Journal of the History of Economic Thought, 30(6): 1206-1212.

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Ivo Maes, « Antonella Rancan and Francesco Sergi, Modelling Europe. A History of Multi-Country Models at the European Commission (1970-2005) »Œconomia, 15-1 | 2025, 147-150.

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Ivo Maes, « Antonella Rancan and Francesco Sergi, Modelling Europe. A History of Multi-Country Models at the European Commission (1970-2005) »Œconomia [En ligne], 15-1 | 2025, mis en ligne le 01 mars 2025, consulté le 13 décembre 2025. URL : http://journals.openedition.org/oeconomia/18535 ; DOI : https://doi.org/10.4000/14q2n

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Ivo Maes

Université Catholique de Louvain, Robert Triffin Chair and Non-resident fellow, Bruegel. ivo.maes@bruegel.org

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