Table B1 shows the long run effect of a 10 per cent increase in the terms of

Table b1 shows the long run effect of a 10 per cent

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Table B1 shows the long-run effect of a 10 per cent increase in the terms of trade on other variables in both models. 6 As there is still some cyclical movement in the data, the average deviations over the period 2025:Q3 to 2030:Q2 are reported in Table B1.
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35 Table B1: Long-run Effect of Increase in Mining Prices Percentage change from baseline MMRF AUS-M Terms of trade 10 10 Real GDP 2 2 Real private consumption 4 5 Real government consumption 2 0 Real investment 5 4 Real imports 5 8 Real exchange rate 9 8 Real exports –6 3 Agriculture –10 –8 Mining 24 10 Manufacturing –14 –7 Services –26 –12 Real output Agriculture –3 –4 Mining 13 8 Coal 15 na Gas 7 na Iron ore 26 na Other metallic ore 20 na Manufacturing –2 –5 Steel –2 na Alumina 22 na Aluminium 14 na Other metals 5 na Metal products –1 na Services 2 1 Real gross state product NSW 1 na Vic –1 na Qld 4 na SA –3 na WA 11 na Tas 0 na NT 8 na ACT 3 na Notes: Per cent deviations of long-run solution from alternative simulations in which mining export prices are lower; alternative simulations are calibrated so that terms of trade in the baseline are 10 per cent higher; simulations are described in text
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36 Given the different approaches to specification and estimation, the similarity of the broad results may be surprising. Both models suggest a moderate increase (of about 2 per cent) in real GDP with consumption and investment rising somewhat more, offset by large increases in import volumes. Both models have appreciations in the real exchange rate that are similar to, but slightly smaller than, the increase in the terms of trade. With respect to industry output, mining production rises substantially, accompanied by smaller increases in services. These increases are partially offset by decreases in agriculture and manufacturing. There are also differences in the results. For example, export volumes increase slightly in AUS-M, but decline substantially in MMRF. The reduction in MMRF includes a large response by manufacturing and services exports to the higher exchange rate, which more than offsets a rise in mining export volumes. One of the more important differences is that MMRF provides more finely disaggregated responses. The model provides estimates of output disaggregated by state and detailed industrial categories. The full output of the simulation runs to hundreds of thousands of estimates. In Table B1 we provide a very brief illustration, with estimates of output by state and a few select industries. B.2 Comparison with Previous MMRF Studies Three previous studies have examined the effect of terms of trade changes using MMRF. McKissack et al (2008) examines the impact of a 20 per cent increase in the terms of trade generated by a shift in world demand for iron ore and coal. The study is mainly concerned with the distribution of employment effects across states and industries. It uses a short-run closure for the model simulation where capital stocks are fixed. Total employment is also fixed (although labour freely flows between industries and regions). Impacts on macroeconomic aggregates like
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