MIMER is a dynamic general equilibrium model with overlapping generations. The primary purpose of the model is to analyse public finances as well as the long run development of the Swedish economy. MIMER employs a small open economy framework, which is appropriate for the Swedish economy. Goods are traded on an international competitive market with given world market prices and capital is perfectly mobile internationally. Since the economy is not big enough to influence the interest rate on the international capital markets, the interest rate in the economy is exogenously given by the world interest rate.
The economy consists of perfectly competitive, profit maximizing firms, overlapping generations of heterogeneous households, a government sector as well as the so-called premium pension system. The premium pension system is a small part of the national pension system. Every year 2.5 percent of taxable income are allocated in the form of pension credits to this part of the pension system. A central assumption in MIMER is that the behaviour of households and firms is based on rational and conscious choices. The behaviour is therefore not based on exogenous assumptions but is instead derived from a given set of objective function as well as several constraints faced by the firms and the households. The behaviour is furthermore forward-looking since both the constraints and the objective functions include forward-looking variables. The expectations about future variables formed by the firms and the households play therefore a central role for their decisions. It is assumed that expectations about the future are fully rational. In order to simplify the model, it is assumed that there is no uncertainty about the future economic development. This implies that firms and households can foresee exactly how future variables will evolve (so-called “perfect foresight”). The results derived from the model do therefore not rely on random deviations or mistakes in the expectations about the future formed by the firms or the households. Despite the assumption of “perfect foresight” there is an element of uncertainty faced by the households since there is uncertainty about how long the individuals live. This in turn implies that households value the present more than the future.
The model does not include monetary policy and the economy is therefore only influenced by relative prices and quantities. It is furthermore assumed that wages are determined under perfect competition and that there is full employment. There are no business cycles in the model.
The parameter values in MIMER have been calibrated to reflect the Swedish economy. This means that Swedish data on both micro and macro level have been used to create life-cycle profiles of public consumption expenditures, wage income, pension claims among other things. The parameters have furthermore been calibrated so that GDP components are roughly in line with Swedish data. This all implies that MIMER is well-suited to analyse the Swedish economy.