MODELS KICK-OFF MEETING BRUSSELS03/16/07 W.P.5: NEMESIS RESEARCH

WP5: RESEARCH WITH NEMESIS MODEL A provision and use of a comprehensive Econometric Sectoral model of the European Union Economy. A provision and use of a comprehensive Econometric Sectoral model of the European Union Economy. To extent the NEMESIS sectoral econometric model so as to adapt it to the mechanisms needed for analysis of Lisbon Strategy. To extent the NEMESIS sectoral econometric model so as to adapt it to the mechanisms needed for analysis of Lisbon Strategy. To make the model available for all policies and structural reforms and Lisbon linked policies. To make the model available for all policies and structural reforms and Lisbon linked policies.

STATE OF THE ART OF NEMESIS (1/3) Detailed sectoral model (30 sectors of production) for 28 countries. Detailed sectoral model (30 sectors of production) for 28 countries. Econometric behavioral equations Econometric behavioral equations Supply-side with endogenous technical change module Supply-side with endogenous technical change module May be extended to more than 30 years of simulation May be extended to more than 30 years of simulation Macro sectoral track is the result of strong interdependencies between activities (different from an aggregated model) Macro sectoral track is the result of strong interdependencies between activities (different from an aggregated model)

STATE OF THE ART OF NEMESIS (2/3) Analysis of interdependencies: Analysis of interdependencies: o Intermediary goods o Investment goods o Knowledge spillovers o Detailed consumption block

STATE OF THE ART OF NEMESIS (3/3) o Detailed Energy-Environment module (CO 2, SO 2, NO X, PFC, CF 6 ) o Detailed Land-use module in 6 claims: housing, other urban building, transport equipment, arable, grass and forest o Sustainable development indicators including social aspects

USES OF NEMESIS Baseline scenarii up to 30 or 50 years Baseline scenarii up to 30 or 50 years “break down” or “prospective scenarii” “break down” or “prospective scenarii” Assessment of policies mainly structural policies Assessment of policies mainly structural policies Short/Medium term and Long term assessment Short/Medium term and Long term assessment Sectoral assessment Sectoral assessment Kyoto, environment, energy, land-use, R&D, etc…. Kyoto, environment, energy, land-use, R&D, etc….

HUMAN CAPITAL: ONE MAJOR CONCERN OF THE LISBON STRATEGY : EDUCATION AND TRAINING To make a human capital general index, by country, linked to Lisbon targets To make a human capital general index, by country, linked to Lisbon targets To link this index to skill and unskilled index by sector To link this index to skill and unskilled index by sector To build in the general index and the labor skills in the sectoral production function To build in the general index and the labor skills in the sectoral production function Estimation and calibration of the production block Estimation and calibration of the production block

LABOR MARKET AND HOUSEHOLDS To split labor market between skilled and unskilled workers To split labor market between skilled and unskilled workers Supply of skilled labor linked to real wages and education and training Supply of skilled labor linked to real wages and education and training Demand for skilled labor from sectoral production functions Demand for skilled labor from sectoral production functions Determination of skilled and unskilled wages Determination of skilled and unskilled wages New consumption function New consumption function

IMPLEMENTATION IN THE MODEL The new modelling shape The new modelling shape The tests The tests The use for Lisbon strategy The use for Lisbon strategy

THEORETICAL AND EMPIRICAL BACKGROUND Productivity/growth (Aghion and alii 2005): Productivity/growth (Aghion and alii 2005): imitation of technology frontier imitation of technology frontier innovation of technology innovation of technology need for higher education for innovation, need for higher education for innovation, the closer the state is to the technological frontier the more important is higher education for productivity and growth. the closer the state is to the technological frontier the more important is higher education for productivity and growth. Complementarity between investment in higher education and investment in R&D (Romer 2000) Complementarity between investment in higher education and investment in R&D (Romer 2000) R&D and competition pressure R&D and competition pressure