Modelling Fiscal Policy with OLGA: Treasury’s OverLapping Generations model of the Australian economy

Yiyong Cai, Linus Gustafsson, Michael Kouparitsas, Jazmine Smith and Rachel Zhang
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The Australian Treasury maintains a significant macroeconomic modelling capability to meet the needs of a broad set of internal and external stakeholders now and into the future.

Treasury’s current in‑house capability is similar to that of the US Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT). These agencies have a suite of macroeconomic models to quantify the general equilibrium effects of policy on economic activity, household welfare and public finances.

In this paper we introduce one of the models in that suite, Treasury’s overlapping generations model of the Australian economy (hereafter OLGA). OLGA has been developed by economists in Treasury’s Macroeconomic Analysis and Policy Division to support Treasury’s counterfactual fiscal policy analysis. OLGA is a small open economy variant of the well‑known lifecycle model developed by Auerbach and Kotlikoff (1987). It has been calibrated to Australian data and policy settings.