An Inter-temporal General Equilibrium Econometric Model for a Small Open Economy with Application to Australia

An inter-temporal general equilibrium econometric model is developed for the Australian economy and used to simulate a trade policy. The model treats the prices of non-traded goods as endogenous and takes account of the inter-temporal optimality conditions implicit in the determination of saving, capital formation and the price of new investment. Utilising quarterly Australian data, the model is estimated by the method of full information maximum likelihood. Estimates of supply and demand elasticities are presented and discussed. Finally, the model is used to simulate the effects upon the economy over time of anticipated and unanticipated changes in the tariff rate.