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A small New Keynesian state space model of the Australian economy

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  • Leu, Shawn Chen-Yu
  • Sheen, Jeffrey

Abstract

Using a small New Keynesian state space macroeconomic model, we apply maximum likelihood estimation and the Kalman filter to obtain joint estimates of the unobservable medium-run paths of potential output and its normal rate of growth, the NAIRU, the neutral real interest rate and the subjective discount factor for Australia from 1984Q1 to 2006Q4. Using the estimated model we obtain dynamic forecasts for output, unemployment, and inflation to compare with the actual data from 2007Q1 to 2008Q4. Combining the estimated model with a monetary policy rule, we examine impulse responses of inflation and the output and unemployment gaps to shocks associated with the global financial crisis of 2008.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1 ()
Pages: 672-684

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:672-684

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

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Keywords: Natural rates; New Keynesian; Kalman filter; State space model; Unobserved components;

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References

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Cited by:
  1. Škovránek, Tomáš & Podlubny, Igor & Petráš, Ivo, 2012. "Modeling of the national economies in state-space: A fractional calculus approach," Economic Modelling, Elsevier, vol. 29(4), pages 1322-1327.
  2. Fatih KARANFIL & Ata OZKAYA, 2013. "Indirect Taxes, Social Expenditures and Poverty:What Linkage?," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 13(3), pages 337-350.
  3. Dungey, Mardi & Osborne, Denise, 2013. "International Transmissions to Australia: The Roles of the US and Euro Area," Working Papers 17208, University of Tasmania, School of Economics and Finance, revised 16 Oct 2013.
  4. de Silva, Ashton J, 2010. "Forecasting Australian Macroeconomic variables, evaluating innovations state space approaches," MPRA Paper 27411, University Library of Munich, Germany.
  5. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, vol. 88(280), pages 64-78, 03.

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