IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Forecasting and Policy Analysis with a Dynamic CGE Model of Australia

Listed author(s):
  • Peter B. Dixon
  • Maureen T. Rimmer

The main ideas in this paper are: (a) that CGE models can be used in forecasting; and (b) that forecasts matter for policy analysis. We demonstrate these ideas by describing an application of MONASH, a dynamic CGE model of Australia, to the Australian motor vehicle industry over the period 1987 to 2016. The key to generating believable forecasts is to use detailed information available from expert groups specializing in the analysis of different aspects of the economy. In MONASH we incorporate forecasts by specialists: on the domestic macro economy; on Australian economic policy; on world commodity markets; on international tourism; on production technologies; and on consumer preferences. We have found that CGE forecasts incorporating such specialist information are readily saleable to public and private organizations concerned with investment, employment, training and education issues. This is partly because the economy-wide consistency guaranteed by the CGE approach enables users of economic intelligence to see the disparate forecasts dealing with different parts and aspects of the economy within an integrated perspective. Over the last thirty five years, CGE models have been used almost exclusively as aids to "what if" (usually policy) analysis. In almost all cases it has been assumed that the effects of the shock under consideration are independent of the future path of the economy. Thus, for "what if" analysis, a common implicit view is that realistic basecase forecasts are unnecessary. Contrary to this view, we find that "what if" answers depend significantly on the basecase forecasts. This is not surprising when we are concerned with unemployment and other adjustment costs. However, we find that basecase forecasts are critical even when our concern is the long-run welfare implications of a policy change. For example, we find that the simulated long-run effects of a tariff cut on imported cars are strongly influenced by the basecase forecast of the rate of technical progress in the car industry relative to that in other industries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Initial version, 1998-06
Download Restriction: no

File URL:
File Function: Local abstract: may link to additional material.
Download Restriction: no

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number op-90.

in new window

Date of creation: Jun 1998
Handle: RePEc:cop:wpaper:op-90
Contact details of provider: Postal:
PO Box 14428, Melbourne, Victoria, 8001

Phone: 03 9919 1877
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Adams, Philip D. & Dixon, Peter B. & McDonald, Daina & Meagher, G. A. & Parmenter, Brian R., 1994. "Forecasts for the Australian economy using the MONASH model," International Journal of Forecasting, Elsevier, vol. 10(4), pages 557-571, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cop:wpaper:op-90. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Horridge)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.