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Chapter Five
Sensitivity analysis
How robust are the simulation results to changes in the assumptions? This
Chapter reviews sensitivity of the findings to changes in key assumptions.
The flow on impacts (i.e. the deviations from base case) that are forecast
to result if the economy makes greater use of e-commerce in the way
modelled should be viewed as being fairly robust. They should apply
whatever cyclical changes the economy will in fact experience in the years
ahead. If growth slows down, or accelerates, and is different from
outcomes foreshadowed in the base case in this analysis, the forecast
deviations could still be anticipated. Activity would still be higher than
would be the case if Australia did not adopt e-commerce.
5.1 Different direct impacts
How would the outlook differ if the actual direct changes (or model
shocks) were different?
Experimentation with the model using different settings indicates that the
findings are fairly robust to changes in most of the assumed direct impacts
(or shocks) introduced into the model. The broad picture about the
nature and composition of expected economy-wide impacts do not
change with adjustments in the initial shocks. The main difference is that
the magnitude of the forecast outcomes differs. While the MONASH
model is not a linear model, for reasonably small changes in initial shocks,
the results are generally altered proportionately to the magnitude of
changes in the initial shock.
Readers can anticipate the impact of alterations in starting shocks if they
wish. Chapter Four contains an indication of the importance to GDP and
economic welfare of each of the 14 sets of shocks used in the e-commerce
change scenario simulation. These indicators can be used for sensitivity
analysis about the flow on impacts. For example, if it is thought that the
initial estimate of the saving of margins by consumers (shock s1) was too
low and that it should be raised by 50 per cent, then it is expected that a
MONASH simulation would generate an extra long-run increase in
consumption of 0.09 per cent and in GDP of 0.07 per cent.
It is notable that the analysis has made assumptions about major
parameters such as the availability of bandwidth at affordable prices. At
this stage it appears likely that this will be obtained. If not, the forecast
impacts will be reduced commensurately with shortfalls in the rate and
extent of widespread adoption of e-commerce. 19
Additionally, some readers may view that the analysts have been too
conservative in anticipating a ten year delay until the full effect of
identified changes are felt when it could be achieved in say five years. In
this case, outcomes forecast for 2007 could be achieved as early as 2002.
5.2 Leading and lagging the rest of the world
Even if other countries are quicker in taking up e-commerce than
Australia, Australia would still obtain most of the benefits forecast because
it would still obtain an absolute productivity gain (given that the direct
19 There may be major changes, however, if there are in fact substantial differences in bandwidth and other
support infrastructure in different regions. This is identified as an area to be covered in further work.
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