Models

The suite of Independent Economics models of the Australian economy includes:

Independent CGE model (updated Dec 2012)

The Independent Computable General Equilibrium (CGE) model is an exciting and completely new CGE model of Australia. It provides a powerful tool for simulating the economic impacts of changes in government economic policies, including industry and tax policies. It shows impacts on economic activity, employment, trade and investment at the level of individual industries, impacts on households and impacts on the economy as a whole.

Previously Chris Murphy and Kelly Neill have successfully developed CGE models in Australia and abroad. They have also used these models to assist governments and business develop sound public policies. For example, they collaborated in a team that modelled the economic impacts of Australia's key 19 taxes for the Australian Treasury for use in the Henry Tax Review.

At Independent, they have developed and launched the Independent CGE model, which is now being successfully used in our client work.

The Independent CGE model is unique in including all of the following features:

  • uses recently-released ABS input-output tables in its database
  • uses the most up-to-date ABS industry classification, ANZSIC 2006, and distinguishes 120 industries
  • incorporates sophisticated modelling of production in each industry, distinguishing 53 types of labour, structures, seven types of capital equipment, land, location-specific and firm-specific fixed factors and intermediate inputs
  • models the carbon tax, including its effects on prices, and how it is likely to affect the pattern of electricity generation between brown coal, black coal, gas, diesel and renewable energy sources
  • builds in highly-developed modelling of the business tax system and its economic impacts
  • is unique in distinguishing four Defence industries that manufacture Defence-specific maritime vessels, aerospace equipment, land vehicles, and electronic equipment (including weapons)
  • provides a rigorous measure of changes in consumer welfare or living standards, so that policy changes can be correctly evaluated in terms of the public interest.

Download the information paper on "The Independent CGE model" (updated December 2012).

For more information, email Kelly Neill or phone her on 0429 013 334.

Independent Macro-econometric model (updated April 2013)

The all-new Independent macro-econometric model judiciously balances economic principles and evidence from the historical data in capturing the broad workings of the Australian economy. This makes it a powerful tool to enhance the accuracy of economic forecasting whether the time horizon is short (to 2015) or long (to 2050). It also means that it delivers powerful insights into fiscal, monetary and labour market policies.

Chris Murphy, the Director of Independent, is well-known for developing the Murphy family of models of the Australian economy. At Independent, Chris and Dinar Prihardini have worked together to develop the all-new Independent macro-econometric model, which is at the cutting edge of macro-econometric modelling.

In 2013, the Independent Macro-econometric model is being used in major client projects including the following.

  • generation of basecase, low and high scenarios for the Australian and state economies to 2050 to support investment decisions for Australian and overseas superannuation funds
  • detailed projections of construction activity to 2015/16 to support the planning of industry participants
  • projections of labour costs to 2017/18 in different industries in different states to support submissions to regulators
  • projections of labour market conditions quarter-by-quarter in 2013/14 to assist recruitment planning

The key features of the Independent Macro-econometric model are:

  • forecasts on a quarter-by-quarter basis to a short-term and long-term horizon
  • used with a detailed demographic model to allow for the economic effects of population ageing in developing robust long-term projections
  • strong data consistency for more accurate forecasting
  • solid theoretical foundations for more robust policy analysis
  • six industry sectors to better capture the macro-economic implications of industry developments such as the mining boom
  • fully-consistent, detailed projections for the eight states and territories from our satellite states model
  • an understanding of how the Reserve Bank pursues its inflation target in setting monetary policy, taking into account developments in inflation, unemployment and the bond market
  • modelling of consumer and investment behaviour that allows for the GFC
  • a new approach to modelling household consumption that takes into account targets for asset holdings based on labour income
  • a detailed representation of the interactions between building and construction activity in each industry and the broader economy
  • allows for structural change in the labour market

For more information, email Dinar Prihardini or phone her on 02 6295 8884.

Independent HFE model

In Australia, state fiscal capacities are equalised through the Horizontal Fiscal Equalisation (HFE) system used in distributing GST revenue between the states. The Independent HFE model is a multi-regional Computable General Equilibrium (CGE) model. It is the leading tool for analysing the economic impacts of any proposed changes to Australia's HFE arrangements.

The Independent HFE model shows how HFE policy options can lead to interstate migration that changes living standards. It has already been used in a major HFE modelling report submitted by the South Australian Government to the GST Distribution Review.

For more information, email Kelly Neill or phone her on 0429 013 334.

Independent Short-term Forecasting model

The Independent Short-term Forecasting model is a structural Vector Autoregression (SVAR) model of Australia designed for a post-GFC world. Hence, it focusses on the linkages from the world financial markets to the world economy, and from the world to Australian financial markets and the Australian economy.

For Australia, this model provides forecasts of economic growth, unemployment and inflation, and their financial market drivers of the stock market, interest rates and the exchange rate. Forecast updates are available within days of the release of each quarterly national accounts.

For more information, email Dinar Prihardini or phone her on 02 6295 8884.

Independent Regional Water model

The Independent Regional Water model is a computable general equilibrium (CGE) model designed to estimate the economic impact of government purchases of water entitlements in the South West Murrumbidgee.

The Independent Regional Water model:

  • takes into account that when reduced water entitlements lead to the release of land, capital and labour from irrigated agriculture, markets function so that those resources are converted for use in other industries
  • models how the decisions farmers make about whether to stay in the South West Murrumbidgee or leave depend on economic opportunities
  • tracks the proceeds that accrue to farmers when they sell their water entitlements

The model was developed for use in a study commissioned by the Murrumbidgee Valley Funding Partners to model the economic impact of the Draft Basin Plan.

For more information, email Kelly Neill or phone her on 0429 013 334.

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