A Stock-Flow Consistent Model of the Icelandic Economy, 2004–2021
Résumé
In this paper, we provide a Stock-Flow Consistent model of the Icelandic economy that is used both to replicate stylized facts and to carry out macroeconomic forecasts. We show that the key drivers of the domestic macroeconomic dynamic are growth of the Eurozone, exchange rate with the euro, Central Bank of Iceland key interest rate and entrepreneurs' confidence. The model is shocked in order to reproduce the COVID-19 crisis in the Eurozone and the effects on the Icelandic economy are analyzed. We finally discuss how deficit spending and depreciation of the Icelandic krona might limit the recessive effects.