Table 3.
Summary of closure and shocks
| 2020 | 2021 | 2022 | 2023 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2‐4 | Q1‐4 | Q1‐4 | ||
| 1 | Household consumption | N | X | X | X | X | X | N | N |
| 1a | Saving rate | X | N | N | N | N | N | X | X |
| 2 | Gov’t consumption | N | X | X | X | X | X | N | N |
| 3 | Exports | N | X | X | X | X | X | X | X |
| 4 | Imports | N | N | N | N | N | N | N | N |
| 5 | Investment | N | N | N | N | N | N | N | N |
| 6 | Employment | N | N | N | N | N | N | N | N |
| 7 | Capital utilisation | N | N | N | N | N | N | N | N |
| 8 | Productivity | X | X | X | X | X | X | X | X |
| 9 | Transfer payments | X | X | X | X | X | X | X | X |
| 10 | Wage subsidy | X | X | X | X | X | X | X | X |
| 11 | GDP and GSP | N | N | N | N | N | N | N | N |
| 12 | Population | X | X | X | X | X | X | X | X |
X = exogenous, N = endogenous.
1. Household expenditure is normally determined in VURM as a function of household income and an exogenous saving rate. Here, we endogenise the savings rate (1a) to accommodate the negative shocks in 2020Q2 and 2020Q3 and recovery thereafter. Taste changes are also endogenised to capture the change to the commodity composition of household expenditure under physical distancing requirements. In all three scenarios, from 2022Q3 the saving rate is exogenous.
2. Government expenditure is normally determined as a function of population size. Like household expenditure, it is exogenised from 2020Q2 to 2021Q4 to incorporate productivity and physical distancing shocks. In all three scenarios, from 2022Q1 government expenditure is determined as a function of population size.
3. Exports Exports of key goods and services (e.g. tourism) are exogenous in all three scenarios.
4. Imports are endogenous and treated as imperfect substitutes for domestically produced goods and services with the same name.
5. Investment by industry is endogenous and responds to changes in capital utilisation and rates of return.
6. Employment is endogenous and responds to changes in the marginal product of labour and the real wage. Over time, the real wage adjusts slowly to return the national unemployment rate to its basecase level.
7. Capital utilisation is endogenous and responds to changes in the marginal product of capital and the real rental rate. If capital rentals fall relative to the CPI, owners of capital are assumed to reduce capital utilisation. In the basecase, capital utilisation averages around 95 per cent, so there is limited scope to increase capital utilisation but ample scope to reduce utilisation in an unanticipated downturn.
8. Productivity is exogenous in the policy simulation. It would normally take on the same growth rate as in the basecase. To model COVID‐19 and its containment, an additional exogenous shock is applied to productivity from 2020Q2 to 2021Q1, after which it resumes its original path (see Section 2.2.1).
9. Transfer payments and 10. Wage subsidies are exogenous and reflect JobKeeper and other packages (Section 3.2.4).
11. GDP is endogenous and reflects the shocks applied to the major components of expenditure: household, government and exports.
12. Population is assumed to grow more slowly throughout the simulation in all three scenarios due to lower net overseas migration.