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Assessing the macroeconomic impact of the EIB Group

European Investment Bank, (2018), “Assessing the macroeconomic impact of the EIB Group”, June

RHOMOLO is a recursively dynamic spatial computable general equilibrium model. It has been developed and maintained by the regional economic modelling team at the European Commission’s Directorate-General Joint Research Centre (DG JRC) in cooperation with the Directorate-General for Regional and Urban Policy (DG REGIO). It is used for policy impact assessment and provides sector-, region- and time-specific simulations to support EU policy evaluation of investments and reforms across a wide array of policies. RHOMOLO is rooted in the tradition of Computable General Equilibrium (CGE) models. The model relies on a micro-founded neoclassical equilibrium framework where supply and demand are balanced through a system of relative prices and behavioural functions. Policy-driven scenario perturbations (technically referred to as “shocks”) are introduced as deviations from a benchmark equilibrium state of the economy affecting the optimal supply and demand behaviours of all the agents in the economy. All equations are solved simultaneously, thus resulting in reallocation of goods and factors consistent with the new price system in a new counterfactual equilibrium. Policy appraisal is based on a comparison between the counterfactual and the benchmark equilibrium. RHOMOLO therefore provides an evaluation of the interaction effects between all agents through market transactions. Particular attention is devoted to the explicit modelling of spatial linkages, interactions and spillovers between regional economies. For this reason, models such as RHOMOLO are referred to as Spatial Computable General Equilibrium (SCGE) models.