Historical Simulations with the MONASH Regional Equation System

MONASH-RES combines a top-down regional equation system with the MONASH dynamic model of Australia to produce regional forecasts or policy analysis. Experience indicates that MONASH-RES gives acceptable rankings of regional economic prospects but understates inter-regional differences. We investigate the model's properties by attempting to reproduce observed patterns of State/Territory economic performance from 1986-87 to 1993-94. Industries are classified either as national, producing commodities that are readily traded between regions, or as local, producing goods or services that are not traded between regions. Regional outputs of national industries are assumed to be independent of regional demand for them but regional outputs of local industries must meet regions' demands. The results demonstrate that MONASH-RES forecasts are improved significantly by the inclusion of region-specific macro data and accurate information about the regional distribution of output changes in national industries. They confirm that the treatment of local industries in MONASH-RES is satisfactory.