“It [MATLAB] was used in Dynare in order to promote the accuracy and the ease of generating this model.”
— Allan Wright, Manager, Central Bank of the Bahamas

Key Outcomes

• Sector-specific modelling separates tourism and non-tourism sectors for granular analysis
• Quantified vulnerabilities inform climate resilience and diversification strategies
• MATLAB® and Dynare enable rapid prototyping and simulation of dynamic stochastic general equilibrium (DSGE) models
• Policy insights support disaster recovery planning and long-term economic stability

Background

Tourism accounts for about 70% of the Bahamas’ output. Climatic events and foreign demand fluctuations pose significant risks to economic stability. The Central Bank needed a way to quantify these vulnerabilities and test policy responses to shocks such as hurricanes and changes in US tourism demand.

Challenge

Traditional aggregate models could not capture sector-specific dynamics. The Central Bank required a flexible modelling framework to simulate climate-related shocks and foreign demand changes, and to assess their impact on output, consumption, inflation, and exchange rates.

Solution

Allan Wright and his team built a DSGE model using MATLAB and Dynare. The model separates tourism and non-tourism sectors, incorporates flexible exchange rate dynamics, and simulates climatic and foreign demand shocks. MATLAB enabled rapid development and clear visualisation of results.

This approach also provides a foundation for nowcasting – short-term forecasting techniques that can improve responsiveness to emerging shocks.  

Results

• Tourism output can fall by 42% after a major climatic shock, with overall output down 35%
• Household consumption declines by about 0.9%
• Inflation spikes initially due to supply constraints but stabilises by the 15th period
• Variance decomposition shows climatic shocks have the largest impact on domestic output and prices

These insights support investment in climate-resilient infrastructure, diversification of tourism products, and enhanced disaster recovery planning.

Explore Related Topics

• Watch the full session here
• Explore dynamic stochastic general equilibrium (DSGE) models: https://www.mathworks.com/discovery/dsge-models.html
• Learn how to model climate stress scenarios: https://www.mathworks.com/discovery/climate-stress-testing.html
• Understand physical risk modeling techniques: https://www.mathworks.com/discovery/physical-risk.html