Economic consequence analysis is one of many inputs to terrorism contingency planning. Computable general equilibrium (CGE) models are being used more frequently in these analyses, in part because of their capacity to accommodate high levels of event-specific detail. In modeling the potential economic effects of a hypothetical terrorist event, two broad sets of shocks are required: (1) physical impacts on observable variables (e.g., asset damage); (2) behavioral impacts on unobservable variables (e.g., investor uncertainty). Assembling shocks describing the physical impacts of a terrorist incident is relatively straightforward, since estimates are either readily available or plausibly inferred. However, assembling shocks describing behavioral impacts is more difficult. Values for behavioral variables (e.g., required rates-of-return) are typically inferred or estimated by indirect means. Generally, this has been achieved via reference to extraneous literature or ex-ante surveys. In this talk we describe a new method. We elucidate the magnitude of CGE-relevant structural shifts implicit in econometric evidence on terrorist incidents, with a view to informing future ex-ante event assessments. Ex-post econometric studies of terrorism by Blomberg et al.(2004) yield macro econometric equations that describe the response of observable economic variables (e.g., GDP growth) to terrorist incidents. We use these equations to determine estimates for relevant (unobservable) structural and policy variables impacted by terrorist incidents, using a CGE model of the U.S. This allows us to: (i) compare values for these shifts with input assumptions in earlier ex-ante CGE studies; and (ii) discuss how future ex-ante studies can be informed by our analysis.
About Dr. Jason Nassios
Dr. Jason Nassios is a Research Fellow at the Centre of Policy Studies (CoPS), based at Victoria University's Flinders Street campus in Melbourne. He holds a PhD in Applied Mathematics and Bachelor's Degrees in Commerce and Science from the University of Melbourne. Prior to joining CoPS in April 2015, Jason spent two years as an Investment Consultant at Mercer Australia. Jason's key areas of interest are applied economic modelling, applied mathematics, policy analysis and finance.
About Professor James A. Giesecke
Professor James A. Giesecke is the Director of CoPS. His research is in the development of large-scale multi-regional and national computable general equilibrium (CGE) models, and the application of these models to the analysis of the determinants of economic growth and structural change, forecasting, and policy analysis.