EAGLE (Euro Area and Global Economy) model

The EAGLE (Euro Area and Global Economy) model is a large-scale micro-founded model for the analysis of spillover effects and macroeconomic interdependence across euro area countries, and between euro area and non-euro area countries. The open economy version of the New Keynesian paradigm – the “New Open Economy Macroeconomics” framework – forms EAGLE’s theoretical foundation and ensures that monetary, exchange rate, fiscal and structural policy measures play an important role. The model is theoretically coherent thanks to its micro foundations and rich structure, thus making it possible to conduct a quantitative analysis that clearly presents all the policy implications.

More specifically, the EAGLE model builds on the ECB’s New-Area-Wide Model by adding the following three dimensions. First, the euro area is characterised as a monetary union composed of two regions (Germany and the rest of the euro area, for example) that share a common monetary authority, which sets the common nominal interest rate according to euro area-wide variables. The model is particularly effective at assessing the implications of the common monetary policy and country-specific characteristics for the transmission of country-specific or common shocks to the euro area. Second, the EAGLE model includes two countries outside the euro area. This makes it possible to study the role of the nominal euro exchange rate and extra-euro area trade in transmitting shocks originating outside or inside the euro area (third-country effects). Third, the model not only includes tradable goods, but also intermediate non-tradable goods, and thus provides a more complete picture of the dynamics of international relative prices and trade flows. These three additional dimensions allow the EAGLE model to present an extensive assessment of the macroeconomic interdependence across euro area countries, and between euro area and non-euro area countries. Furthermore, given its rich set of nominal and real frictions, as well as implementable fiscal and monetary policy measures, the model is well suited to conducting realistic policy analysis.

The EAGLE model was developed by a team composed of members from the Banca d’Italia, the Banco de Portugal and the ECB.

Development of the EAGLE model: ECB Working Paper No 1195, May 2010.