Quantifying “Dog Days”

Abstract

In Dog Days, Garnaut (2013) portrays Australia's immediate future as characterised by the end of the mining investment boom, declining terms of trade, a decline in labour input per head of population, slow multifactor productivity growth, fiscal consolidation and rising world interest rates. We quantify the consequences of these developments using a detailed general equilibrium model. Consistent with Garnaut, we find that wage and demand restraint will be required to steer Australia through the difficult period ahead. Public understanding of Dog Days will help move expectations to match current unfavourable conditions and thereby promote an orderly adjustment with minimum damage to employment and standards of living.