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Sustainable development and Macroeconomics :
The HERMES model (European Commission)

Concern about long run macroeconomic trends and balances was successively motivated by the fear of depressions (Keynes), the necessity of reconstruction after the war, the growth-inflation dilemma, regional unemployment crisis, the growing international divides and tensions between rich and poor, the destruction of the environmental balance everywhere in the world. The European Union has initiated many policies to improve macro-economic stability.

In 1981 for example, the European Commission prepared the single internal market of 1993.

• Compute the impacts of opening the European Market in 1993 on growth, employment, price stability, balance of payments and income distribution of the 12 European member countries

• Identify the importance of the main factors generated by the enlarged market: supply effects, value added tax effects, public procurement effects, transport integration effects

• Provide consistent quantitative results to the research on the cost of non-Europe, chaired by Paolo Cecchini, published in June 1988 with a preface by Jacques Delors, President of the European Commission

Benefits for the European Commission and for all Europeans

• Consistently calculated costs and the benefits of the unified European market : employment, GDP, price stability, external balance and income distribution in the 12 European member countries .

• Quantitative studies of the impacts of the oil price increase (1986), convergence of VAT rates (1987), alternative financing of the social security budget (1987), reduction of working time (1988), investments in the environmental protection (1989), taxes on energy (1990), new information technologies (1990)

Work done

• Coordination of the construction of HERMES, a linked 12 European member country macro-sectoral model. Each of the 12 national teams was responsible for one country; the central team was responsible for linkage and consistency.

• Conceived the empirical putty-clay production function approach to quantify timing of of the introduction of new technologies and retiring of old technologies depending on their demand for and consumption of different combinations of labour, capital, energy and materials.

• Check of the results from the modules for production capacity, the demand components (private and public customers, investments, and imports), degrees of capacity utilization, final demand price formation and wage formation.

• The scientific methodologies used were of crucial importance . The project was financed by the Directorate General for Research of the Commission of the European Communities. See section Our Expertise.


• Identification of enlarged market scenarios and application of the model to provide impacts on macroeconomic objectives for the assessment of the internal market 1993, completed by the Cecchini group.

Publications about Macro-economics in proceedings, books or reviews :

•  A comparative analysis of actual Dutch macroeconomic models . In «Macroeconomic modeling: still an intellectual challenge?», ed. by W. Driehuis, M. Fase and H. Den Hartog , 1988.


•  Comment of M. Deleau, P. Malgrange and P.-A. Muet , "A study of short-run and long-run properties of macroeconometric dynamic models by mean of an aggregative core model" in P. Malgrange and P.-A. Muet, Contemporary Macroeconomic Modeling, Basil Blackwell, 1984, p. 247-250.


•  Game theoretic approach of macro-economic simulations for the study of conflicting goals . In «Macroeconomic planning with conflicting goals», ed. By M. Despontin, P. Nijkamp and J. Spronk, Springer Verlag, 1984.


•  « SERENA . A Sectoral, Regional, and National Accounting Econometric Model for the Belgian Economy ». Acco (now Garant), Leuven, 1983, 589 p.
•  Report of a study of macroeconomic alternatives for Spain in the next 5 years 1983-1987. Report to the Spanish Prime Minister Mr. Leopoldo Calvo Sotelo , dec. 1982.


• with Pollefliet Erik and Floridor Jaak . - Macro-economische aspecten van evaluatie. In: Overheidsinterventies, effectiviteit en efficiëntie. Referaten van het 15de Vlaams Wetenschappelijk Economisch Congres. Vereniging voor Economie (ed.), Leuven , 8-9 mei 1981, p. 71-97.

• With Barten Anton P. and Carrin Guy - COMET . A medium term macro-economic model for the European Economic Community . In «European economic review», 7, 1976, p. 63-115;

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