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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

Related research

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

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References

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  1. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388.
  2. Ogaki, M & Reinhart, C-M, 1995. "Measuring Intertemporal Substitution : The Role of Durable Goods," RCER Working Papers 404, University of Rochester - Center for Economic Research (RCER).
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  4. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters, in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. de Silva, Ashton J, 2010. "Forecasting Australian Macroeconomic variables, evaluating innovations state space approaches," MPRA Paper 27411, University Library of Munich, Germany.
  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. 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.
  4. 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.

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