CoPS/IMPACT Working Paper Number G-254

Title: The Victoria University Regional Model (VURM): Technical Documentation, Version 1.0

Authors: Philip Adams, Janine Dixon and Mark Horridge


The Victoria University Regional Model (VURM, formerly known as MMRF) is a dynamic model of Australia's six states and two territories. It models each region as an economy in its own right, with region-specific prices, region-specific consumers, region-specific industries, and so on.

Based on the model.s current database, in each region 79 industries produce 83 commodities. Capital is industry and region specific. In each region, there is a single household and a regional government. There is also a Federal government. Finally, there are foreigners, whose behaviour is summarised by demand curves for international exports and supply curves for international imports.

In recursive-dynamic mode, VURM produces sequences of annual solutions connected by dynamic relationships such as physical capital accumulation. Policy analysis with VURM conducted in a dynamic setting involves the comparison of two alternative sequences of solutions, one generated without the policy change and the other with the policy change in place. The first sequence, called the base case projection, serves as a control path from which deviations are measured to assess the effects of the policy shock.

The model includes a number of satellite modules providing more detail on the models government finance accounts, household income accounts, population and demography, and energy and greenhouse gas emissions. Each of the .satellite. modules is linked into other parts of the model, so that, projections from the model core can feed through into relevant parts of a module and changes in a module can feed back into the model core. The model also includes extensions to the core model theory dealing with links between demography and government consumption, the supply and interstate mobility of labour, and export supplies.

JEL classification: C68, D58, R13

Keywords: CGE modelling, dynamics, regional economics.

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