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Abstract

We estimate an SVAR model for the Australian economy based on an open economy New Keynesian model that accounts for the forward-looking behaviour exhibited by economic agents. Deep structural parameters are identified by placing exclusion restrictions on the VAR residuals and the covariance matrix. Dynamic responses show no price and exchange rate puzzles and indicate that the Reserve Bank of Australia (RBA) stabilises output fluctuations in the short run while maintaining a medium-run inflation target since 1984. Aggregate demand shocks are found to be driven by external demands. The RBA exercises caution in responding to aggregate supply shocks.

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File URL: http://www.sciencedirect.com/science/article/B6VB1-51C9PKB-1/2/74a43760e85aa5e6ef2a9c9e35b94fca
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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1-2 (January)
Pages: 157-168

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:157-168

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: SVAR model New Keynesian Rational expectations Impulse response function Empirical puzzles;

Other versions of this item:

Find related papers by JEL classification:

• C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
• E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

References

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Cited by:

1. Abbas, Syed Kanwar & Sgro, Pasquale M., 2011. "New Keynesian Phillips Curve and inflation dynamics in Australia," Economic Modelling, Elsevier, vol. 28(4), pages 2022-2033, July.

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