LU-EAGLE: A DSGE model for Luxembourg within the euro area and global economy

DateJuly 2018
AuteurAlban Moura and Kyriacos Lambrias

Abstract. We describe LU-EAGLE, a DSGE model developed at the Banque centrale du Luxembourg. LU-EAGLE borrows its general structure from the Euro Area and GLobal Economy (EAGLE) model developed by the European System of Central Banks and also embeds specific features to capture some important characteristics of Luxembourg's economy. In particular, the model reproduces the high levels of exports and imports relative to GDP, as well as the significant share of cross-border workers in Luxembourg's labor market. We calibrate LU-EAGLE and discuss simulation results describing the effects of a set of standard shocks, originating both in Luxembourg and abroad. The model suggests that international spillovers make Luxembourg more responsive to monetary policy shocks and less responsive to fiscal policy shocks. Moreover, it highlights how fluctuations in foreign demand have a significant impact on domestic developments.

JEL Codes: C54, E17, E32, E37, E62, F47.

Keywords: DSGE models, open economy models, policy analysis, Luxembourg.


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