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A New Modeling Framework For Medium-Term Energy-Economy Analysis in Europe

This paper presents the main theoretical and empirical issues concerning the HERMES-MIDAS Linked Systems (HMLS) of models. The systems are very large scale and are intended to perform European-wide medium-term investigations of the energy-economy interactions. The macroeconomic model follows the neo-Keynesian approach to economic modeling while the set of energy demand and supply models follows a mired engineering-econometric one. We facilitate the presentation of the linkage by proposing a typical aggregate neo-Keynesian model into which we introduce energy and proceed by establishing a general framework for energy-economy model linkages. This framework is applied to the coupling ofthe actual large-scale models. Finally, thepolicy analysis capabilities of the HMLS in contrast to the original HERMES model are examined by means of a theoretical and empirical comparison of the two systems' simulation properties and policy responses.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, C53: Forecasting Models; Simulation Methods

Keywords: Energy-Economy analysis, Europe, HERMES-MIDAS model

DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No4-2

Published in Volume 10, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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