Research Discussion Paper – RDP 2019-07 MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy

This paper introduces MARTIN – the Reserve Bank of Australia's (RBA) current model of the Australian economy. MARTIN is an economy-wide model used to produce forecasts and conduct counterfactual scenario analysis. In contrast to other large-scale models used at the RBA – and at many other central banks – which adhere to a narrow theoretical view of how the economy operates, MARTIN is a macroeconometric model that consists of a system of reduced form equations built to strike a balance between theoretical rigour and empirical realism. Most of the model's equations align closely with the way RBA staff typically interpret the behaviour of individual economic variables. However, combining these individual equations in a system can bring fresh insights that are not possible without model-based analysis. In the paper we provide an overview of the model, outline its core behavioural equations and describe its empirical properties. The Online Appendix presents the full set of model equations.