Research Discussion Paper – RDP 7504 The Equations of the RBA1/74 Model of the Australian Economy

Introduction

The Reserve Bank of Australia has constructed two short-run, quarterly, macroeconometric models of the Australian economy; RBA1 [15], which is used mainly for policy analysis, and RBF1 [11], the forecasting model. This paper is a report on the project undertaken in 1974 to update and develop the structural model RBA1.

The aims of this project were

1. to provide a better understanding of the structure of the economy by modelling the economic events which have taken place since 1970;
2. to incorporate recent advances in economic theory and econometric techniques;
3. to overcome some of the limitations of the existing model revealed by its use in policy analysis and simulations.

RBA1/74 is the latest version of the model and is estimated to September 1973. It is essentially an updated version of RBA1 and is therefore similar in structure and specification to its predecessor (cf.[15]). It does, however, incorporate a number of important changes and may be regarded as a further stage in the search for an improved representation of the structural characteristics of the Australian economy. The main aim of this paper is to document briefly the model and to comment on:

1. those areas in which its structure differs from that of RBA1;
2. simulation properties of the model;
3. directions to be taken in future research.