DELFI: a model of the Dutch economy

The modelling of the economy in DELFI combines the neoclassical approach to economics - with optimizing rational economic agents and clearing markets - with new-Keynesian elements, in which imperfections and frictions affect the short-run dynamics of product,  labour market and financial markets. The new, extended version – DELFI 2.0 - includes a detailed sub-model of both the banking and pension sectors, this offers an elaborate framework for analyzing the linkages between the financial sector and the real economy.

In DELFI we put emphasis on an explicit and consistent modelling of the supply side of the economy, which is crucial for understanding long-term developments. An elaborate model of the banking sector means that shocks originating in the financial sector are fully endogenized in the model. Changes in the composition of the bank’s balance sheet (in particular changes in bank leverage), directly affect the price of credit for households and firms. Consequent changes in the demand for credit will transmit to real economic activity. Further real-financial linkages operate through a detailed model of the pension sector’s funding ratio. DELFI 2.0 also includes an explicit model of consumer confidence, which in periods of uncertainty can have a significant impact on the dynamics of household behaviour. DELFI is used for scenario analyses and to produce DNB’s biannual projections.