This more flexible, semi-structural approach allows us to model a wide range of banking and financial variables, going from bank lending spreads to term premia, without taking a stance on the exact theoretical mechanism linking them to the macroeconomy.
At its core, the new ECB-MC model is designed along the lines of the Federal Reserve’s FRB/US model.9 The behavioural decision rules of private agents are based on optimisation and in the long run the model boils down to a neoclassical growth model.