Policies to reduce unemployment: Simulations with Treasury Macroeconomic model

Abstract

A modified Treasury Macroeconomic model is used to assess the relative effects of policy options to reduce unemployment. Simulation results are reported for the Australian economy starting at either a high or a low rate of unemployment. Over the next 10 years or so, all policies are projected to generate cyclical gains and losses in macroeconomic outcomes, including unemployment, relative to the base-case scenario, before converging to an exogenous long-run equilibrium growth path. The structure, amplitudes and other details of the cyclical responses vary both with the policy option and with whether the starting economy unemployment rate is close to the non-accelerating-inflation rate of une..