Swan diagram

The Swan Diagram

In economics, a Swan Diagram, also known as the Australian model (because it was originally published by Australian economist Trevor Swan in 1956 to model the Australian economy during the Great Depression), represents the situation of a country with a currency peg.

Two lines represent a country's respective internal (employment vs. unemployment) and external (current account deficit vs. current account surplus) balance with the axes representing relative domestic costs and the country's fiscal deficit. The diagram is used to evaluate the changes to the economy that result from policies that either affect domestic expenditure or the relative demand for foreign and domestic goods.

References

• Paul Krugman article on Latin American currency and the Swan diagram
• Australian Treasury article on China which discusses the Swan diagram