RDP 2019-07: MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy 6. Conclusion

MARTIN has many of the required features of a central bank's core macroeconomic model. It can shed light on the monetary transmission mechanism, accounts for the behaviour of many Australian macroeconomic variables and displays plausible dynamic properties. But while fulfilling these tasks is important, the real test of a model is that it gets used. Since its development, MARTIN has become a valuable input into the RBA staff's forecasting toolkit, in particular by helping staff to interpret recent economic developments and gauge the consequences of risks and uncertainties around the central forecasts. RBA staff have used MARTIN scenarios to examine topics including the effects of changes in the labour force participation rate (Evans et al 2019), the consequences of changes in housing prices (May et al 2019), spillovers to Australia from the Chinese economy (Guttmann et al 2019), as well as numerous other pieces of work commissioned for internal purposes.

But models can always be improved and we anticipate that further development and refinement of MARTIN will occur in the future. Some areas where development is currently underway or being considered include a more sophisticated treatment of expectations, further development of a supply side of the model and the incorporation of greater detail on the determinants of household and firm income. Just as the rise in commodity prices in the mid 2000s and subsequent mining boom prompted a more detailed treatment of resource commodities in Australian macroeconomic models, future economic developments or structural changes could also warrant a shift in the variables that are included in MARTIN or the attention given to particular sectors of the economy.

Models are only one among many sources of information that staff at the RBA use to analyse economic developments. However, our experience so far is that MARTIN is a useful tool to summarise the results of the range of single-equation models in use at the RBA, and also provides insights that single-equation modelling cannot capture. Although other models and approaches are still used, MARTIN has its place.