Economic Drivers
This article focuses on economic drivers in Model Reef.
You will learn:
What counts as an economic driver.
How to store economic drivers in the Data Library.
How to connect them to variables and valuation logic.
Patterns for using market and macro data safely.
Economic drivers describe external or pricing related inputs that influence revenue, costs and valuation.
What is an economic driver
Economic drivers typically include:
Prices and tariffs
List prices, per unit rates, contract pricing tiers.
FX rates
Currency pairs such as GBP to USD, EUR to GBP.
Inflation and escalation indices
General inflation, wage inflation, rent escalators.
Market indices and benchmarks
Equity indices, sector indices, commodity indices.
Interest rates and yields
Base rates, risk free rates, credit spreads, curves.
These drivers are numeric time series that influence the economic environment of the model.
Storing economic drivers in the Data Library
Each economic driver is stored as a Data Library entry, for example:
Driver - Price - Subscription - Enterprise.Driver - FX Rate - GBP to USD.Driver - Inflation - General - UK.Driver - Index - Commodity Basket.Driver - Base Rate - Central Bank.
When you create or import an economic driver, you specify:
Name and description.
Frequency (daily, weekly, monthly, etc.).
Units (for example GBP, index points, percentage).
Tags such as
FX,Inflation,Market,Rates.
Economic drivers can come from:
Manual inputs.
CSV or Excel imports.
Stock ticker fundamentals or market data feeds.
Google Finance, Yahoo style or similar APIs.
Using economic drivers in revenue and cost variables
Common patterns include:
Price based revenue
Revenue = Units * PriceDriver.Example: subscriptions charged per seat at a price that escalates annually.
FX translation
Revenue = ForeignRevenue * FXRate.COGS = ForeignCost * FXRate.Useful when modelling foreign currency operations in a single reporting currency model.
Inflation adjusted costs
Opex = BaseCost * InflationIndex.Staff Cost = BaseSalary * WageInflationIndex.
Economic drivers allow these relationships to be expressed once and reused across the model.
Using economic drivers in capex, debt and valuation
Economic drivers also play a role in:
Capex modelling
Linking capex estimates to commodity or construction cost indices.
Scaling future project costs with inflation drivers.
Debt and interest
Indexing loan interest rates to base rates plus spreads.
Testing the impact of higher rate curves on interest expense.
Valuation
Using risk free rates and spreads as inputs into discount rate assumptions.
Linking scenario discount rates to economic driver series.
Economic drivers provide a bridge between market conditions and cashflow projections.
Scenario design with economic drivers
When designing scenarios, you can:
Change economic drivers while keeping operational drivers fixed to simulate macro shifts.
Or hold economic drivers constant and vary operational drivers to simulate execution risk.
Or change both to explore combined effects.
Examples:
Downside scenario with lower price growth and higher interest rates.
Upside scenario with stronger market growth and favourable FX.
Stress test scenario with a shock to commodity prices.
Because drivers are scenario specific at model level, each scenario can have its own driver paths.
Good practice for economic drivers
Guidelines:
Keep economic drivers separate from accounting variables.
Use clear naming for scope and units.
Document sources and update cadence in notes.
Avoid over fitting to noisy market data; focus on drivers that materially affect decisions.
Prefer smooth, scenario based paths over raw daily noise for long term planning.
This keeps models robust while still responsive to key economic assumptions.
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