An Introduction to the Trym Model Applications and Limitations

This paper provides an introduction to the TRYM model of the Australian economy used for macro-economic analysis by the Australian Treasury. It provides a brief introduction to the design and overall structure of the model and the model's properties. The model works at a highly aggregated level and hence both demand and supply side responses need to be interpreted with care. The paper uses the control application as an example of the limitations of the model particularly in relation to exchange rate reactions on the demand side and the level of the NAIRU on the supply side. In contrast with the normal focus on the specification of the loss function and problems such as time inconsistency, these two areas are argued to be important sources of qualification to model based policy conclusions.