Summary of the Model

Three separate but related models are used - MSG model, the G-Cubed model and G-Cubed (Asia Pacific). These models all have the same underlying theory, and similar data and parameters. They vary in their emphasis on sectors and regions. The G-Cubed model is most relevant to questions of the energy sector while the Asia-Pacific version focuses on the Asia-Pacific region.

The framework is a global economy wide model accounting for interactions between sectors and between regions. The model is a fully dynamic model with considerable macroeconomic detail, incorporating both real sector and financial sector interactions.

As a dynamic model, it explicitly describes the time path of the effects of scenarios. With its macroeconomic detail and integrated real and financial markets, the model can account for changes in interest rates, exchange rates and international capital movements. Expectations are incorporated into the model.

The model also accounts for the effects of different fiscal and monetary responses to global events and the way in which future policy changes can affect economic activity. Adjustment costs associated with the reallocation of resources in response to scenarios are taken into account. Households and firms are modelled as optimising behaviour over time and a government sector is included that must satisfy intertemporal constraints on borrowing and lending. A complete listing of equations, variables and more can be found on
www.msgpl.com.au.