Since 1997, DREAM has built five economic models. The models are used to project and forecast the Danish economy in both the short and long term as well as to evaluate effects of economic policy. In addition, an environmental economic model is under development.
In DREAM we maintain and develop a set of tools used for analysis of the Danish economy:
GreenREFORM: DREAM is in the process of developing a new environmental and climate-economic model for the Danish economy. The baseline simulation should provide a comprehensive assessment of how future economic development is expected to affect the environment and climate. Further, the baseline simulation should assess whether this development is compatible with the political goals within these areas.
MAKRO: DREAM is developing the new macroeconomic model MAKRO for the Ministry of Finance of Denmark. The MAKRO model’s purpose is to project and forecast the Danish economy in the medium to long term as well as to evaluate effects of economic policy.
DREAM-model-system: The so called DREAM-model-system consists of projections of population, education and labor supply (our demographic projections), which feed into the computable general equilibrium dynamic macroeconomic model (the DREAM model) which is calibrated to the Danish economy. These different components allow the DREAM group to perform economic analysis, with a particular emphasis on investigating the public finance sustainability of economic policy.
Other economic models: The DREAM group has also developed both a static general equilibrium model, the REFORM model, and a dynamic micro-simulation model, the SMILE model. The core focus of the REFORM model is the input-output structure of the Danish economy and is used to evaluate the impact of productivity and competition characteristics of the different sectors and the impact of tax policy on inter-sector activity and on the aggregate economy. The core focus of the microsimulation model SMILE is to evaluate distributional impacts across regions and population groups of public policy changes.
The macroeconomic model MAKRO
We are developing the new macroeconomic model MAKRO for the Ministry of Finance of Denmark. The MAKRO model’s purpose is to project and forecast the Danish economy in the medium to long term as well as to evaluate effects of economic policy. In doing so, it also integrates short-term government economic forecasts.
Environmental and climate-economic model GreenREFORM
DREAM is in the process of developing a new environmental and climate-economic model for the Danish economy. The baseline simulation should provide a comprehensive assessment of how future economic development is expected to affect the environment and climate. Further, the baseline simulation should assess whether this development is compatible with the political goals within these areas.
Microsimulation model SMILE
The microsimulation model, SMILE, makes it possible to analyse individual life cycles and to calculate distributions rather than averages of income, pension, etc. SMILE has been developed to forecast and analyse the long-run developments in demographics, household relocation patterns, labour market affiliation, education level, income, pensions as well as housing demand.
The macroeconomic model DREAM
DREAM is a structural model with overlapping generations. The main objective of the model is to give insight into the long-term developments of government finances. The model is suitable for assessing long-term economic effects of changes in labor market policy, pension legislation, demographics, etc. The model is often used to assess fiscal sustainability.
Multisector model REFORM
REFORM is a static multisector model with 73 economic sectors. The model is used by the Ministry of Finance of Denmark to assess structural GDP effects of all major policy proposals. DREAM also uses the model for various analyses, especially in the areas of competition, productivity and taxation.
