Newfoundland and Labrador Econometric Model (NALEM)

NALEM contains over 370 mathematical equations and 600 data series which are designed to represent key aspects of the provincial economy, and to capture the relationship between certain socioeconomic variables or indicators. For example, the level of consumer spending is related to the level of income which consumers have at their disposal. Anything which affects consumers’ disposable income (e.g., higher/lower income taxes, reduced EI benefits, job losses/gains, etc.) can be expected to have an impact on the level of consumer spending. Thus certain NALEM equations are designed to measure or quantify (i.e., “model” ) the relationship between major categories of consumer spending and income levels, which in turn are linked to other variables in the model. For example, changes in consumer spending can affect government revenues, employment levels, investment spending, and so on; NALEM tries to capture these relationships, or linkages, as well.

NALEM is a macroeconomic model of the economy in the sense that it is designed to capture the major and most important economic relationships in the provincial economy, and not the minute details of every aspect of economic activity. NALEM provides a representation of the current structure (i.e., basic economic relationships) of the provincial economy. As this structure changes (e.g., EI program changes, tax harmonization, collapse of the groundfishery, development of the oil and gas industry, etc.), the model is modified to capture the new or changed economic relationships.

NALEM is organized into 10 different sectors. Consumer spending, residential construction, business investment, government spending, exports, and imports comprise the six expenditure sectors essential to the determination of GDP and other key economic indicators. The remaining four sectors cover income and output, demographic and labour market activity, prices and wages, and government revenue. The government revenue sector deals with the revenues of all levels of government.

NALEM produces annual forecasts of all main indicators of provincial economic activity including GDP, personal income, labour force, employment, Consumer Price Index (CPI), and population. Forecasts for detailed components and determinants of the main economic indicators are also available. Forecasts of economic indicators which are largely determined by factors outside of the provincial economy (e.g., interest rates, exchange rates, certain commodity prices, etc.) are generally obtained from external sources such as national forecasting agencies.

NALEM was developed in 1990 and is operated and maintained by the Economic Research and Analysis Division.