What is E3ME?

E3ME is a macro-econometric model designed to assess global policy challenges. It is the most advanced econometric model in the world and is widely used for policy assessment, forecasting and research purposes. The model is owned and maintained by Cambridge Econometrics.

How does E3ME differ from other macro-econometric models?

E3ME differs from most mainstream models in that it provides a strong empirical basis for analysis.

It can fully assess both short and long-term impacts and is not limited by many of the restrictive assumptions common to Computable General Equilibrium (CGE) models.

E3ME uses a system of error correction, allowing short-term dynamic (or transition) outcomes, moving towards a long-term trend.

The dynamic specification is important when considering short and medium-term analysis (e.g. up to 2020) and rebound effects, which are included as standard in the model’s results.

E3ME’s treatment of the labour market is an area that distinguishes E3ME from other macroeconomic models. E3ME includes econometric equation sets for employment, average working hours, wage rates and participation rates.

The power sector in E3ME is also unique – using a novel framework for the dynamic selection and diffusion of innovations called FTT:Power (Future Technology Transformations for the Power sector).

What policy areas does it cover?

The model provides an integrated treatment of the world’s economies, energy systems, emissions and material demands. This enables it to capture two-way linkages and feedbacks between these components. It is designed to address global economic and economy-environment policy challenges but can be applied to other policy areas due to its in-built adaptability. The model has been used in policy areas as diverse as climate change, gender equality and Brexit.

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