Add Factor
Posted: Fri May 13, 2016 9:11 am
Hi there, I'm looking for some help with add factors. I'm currently creating a government fiscal model, and am using add factors to incorporate government policy measures. I think I understand how to use add factors to implement permanent shifts in a variable, but how would I implement temporary changes?
For example, if the government announced a temporary policy change that is expected to have the following impacts, how would I implement this using add factors?
2015: $500 million higher in revenue compared to basecase
2016: $600 million higher in revenue compared to basecase
2017: policy elapse, combined $500M + $600M impact is eliminated.
My issue is the underlying growth. The initial $500 million is easy to do. But, the next year, it wouldn't be $600 million. It would be $100 million incremental, less any underlying growth associated with the $500 million. Similarly, the 2017 add factor would not be -$1.1 billion but rather $1.1 billion less (or plus) the underlying growth associated with the $500M and $600M.
For example, if the government announced a temporary policy change that is expected to have the following impacts, how would I implement this using add factors?
2015: $500 million higher in revenue compared to basecase
2016: $600 million higher in revenue compared to basecase
2017: policy elapse, combined $500M + $600M impact is eliminated.
My issue is the underlying growth. The initial $500 million is easy to do. But, the next year, it wouldn't be $600 million. It would be $100 million incremental, less any underlying growth associated with the $500 million. Similarly, the 2017 add factor would not be -$1.1 billion but rather $1.1 billion less (or plus) the underlying growth associated with the $500M and $600M.