Macro Policy and Forecasts

The Benefits of National Economic Reform:
May 2015 report to ACOLA

As part of a study on "Australia's comparative advantage", the Australian Council of Learned Academies (ACOLA) commissioned Independent Economics to develop and present alternative economic scenarios for Australia to demonstrate how our economic future depends on whether governments undertake major reform in ten key areas. The scenarios were developed using the Independent Macro-econometric model.

The ten areas of reform are:

  • taxation
  • competition policy
  • free trade agreements
  • federalism
  • workplace relations
  • infrastructure
  • labour force participation
  • innovation
  • migration
  • education

Key Finding

Our report finds that without reform, living standards are only likely to rise modestly, taking real annual consumption per head from $36,000 today to $45,000 in 2030. However, with comprehensive reform, annual consumption per head is modelled to rise to $55,000, implying a reform dividend to living standards of $10,000 per head. By 2050 this reform dividend rises further, to over $15,000 per head.

Access the reports

Access the Independent Economics report "Australia's Comparative Advantage: economic scenarios".

Access the full ACOLA study "Australia's comparative advantage" (ACOLA web-site).

Economic Impacts of Selected Macro Shocks:
Sep 2014 report to Parliamentary Budget Office

The Parliamentary Budget Office (PBO) commissioned Independent Economics to analyse the impact of several macroeconomic shocks on key economic parameters that influence the Budget. The outputs of the analysis were then used by PBO to adjust forecasts for those economic parameters. PBO then ussd its modelling of the relationship between the economic parameters and the Budget to assess the effects on the Budget of the macroeconomic shocks.

The economic shocks were in the following areas.

  • productivity
  • terms-of-trade
  • labour forcer participation

Access the reports

Access the Independent Economics report "Economic impacts of selected macroeconomic shocks".

Access the full PBO study "The sensitivity of budget projections to changes in economic parameters" (PBO web-site).

Macro Forecast and Policy Update:
20 September 2013

  • these are the first publicly-available forecasts from the all-new Independent Macro-econometric model
  • we compare our latest short-term forecasts with the Treasury forecasts from the August Economic Statement
  • we provide long-term forecasts extending out for 20 years
  • we assess the current stances of monetary and fiscal policy against an "optimal" model-based benchmark

Short-term Forecast Highlights

  • Treasury‚Äôs forecasts were published before the June quarter national accounts were released; ours were published afterwards.
  • For 2013/14, both sets of forecasts agree that economic growth will be below normal, sending unemployment higher.
  • For 2014/15, Treasury forecasts a normal rate of growth, whereas we forecast the beginning of an economic recovery.
  • In our forecast for 2014/15, households respond to low interest rates by lifting housing investment and growth in consumption.
  • Hence, we expect unemployment to begin to fall from 2014/15.

Long-term Forecast Highlights

  • In an economic recovery extending for three years from 2014/15, annual GDP growth is close to 4%, while unemployment gradually falls to near 5 per cent.
  • Monetary policy moves back to neutral near the end of this recovery phase, with the 90-day bill rate rising to near 5% p.a.
  • After the weakness of recent years, manufacturing is expect to share in the recovery, as a supplier to housing and a beneficiary of the recent fall in the AUD.
  • The recovery phase will be driven by consumption and housing.
  • Mining falls will cancel out other gains in business investment.
  • In the long-term, population ageing will bring the normal rate of economic growth down from 3 to 2.5 per cent.

Current versus Optimal Macro Policy

  • Under the standard policy approach, monetary and fiscal policy follow simple rules, based on inflation and deficit targeting respectively.
  • Under the optimal approach, macro policy is optimised to minimise the social losses from inflation and unemployment departing from their targets.
  • The standard and optimal projections for monetary and fiscal policy are broadly similar.
  • This indicates that the current expansionary stances for monetary and fiscal policy are broadly appropriate.
  • This is unsurprising as inflation is below the RBA target of 2.5% p.a. and unemployment is above its sustainable rate or NAIRU, estimated at 5.2 per cent.
  • However, the results show that it would be optimal to slightly vary the current policy mix, to make fiscal policy less loose and monetary policy more loose.

Download the Macro Forecast and Policy Update

Download "Economic Outlook and Current Policy Issues".

For more information, email our office.

Independent Economics Home