International Shocks and the Role of Domestic Policy in Australia
AbstractIn the presence of large international disturbances small open economies are faced with difficult policy choices. International conditions impact on domestic outcomes. Using a structural VAR model of the Australian economy I explore the ways in which domestic monetary policy contributes to the output outcomes experienced in the economy. The focus is on the impact of international shocks. Monetary policy is modelled using a cash rate response to GNE, inflation and real exchange rate shocks. The results show that removing the focus on either GNE or inflation leads to lower GDP outcomes for the economy. The challenge for domestic policy is to recognise and respond to international and domestic shocks to the maximum benefit of the domestic economy.
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Bibliographic InfoPaper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 443.
Length: 42 pages
Date of creation: Dec 2001
Date of revision:
VAR; open economy; monetary policy;
Other versions of this item:
- Mardi Dungey, 2002. "International Shocks and the Role of Domestic Policy in Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(2), pages 143-163, June.
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Mardi Dungey & Adrian Pagan, 2009.
"Extending a SVAR Model of the Australian Economy,"
The Economic Record,
The Economic Society of Australia, vol. 85(268), pages 1-20, 03.
- Philip Liu, 2008. "The Role of International Shocks in Australia’s Business Cycle," RBA Research Discussion Papers rdp2008-08, Reserve Bank of Australia.
- Philip Liu, 2007. "Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?," CAMA Working Papers 2007-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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