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A Medium-Scale New Keynesian Open Economy Model of Australia

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  • Jarkko P. Jääskelä
  • Kristoffer Nimark

Abstract

We estimate a new Keynesian open economy dynamic stochastic general equilibrium model of Australia with a large number of shocks, frictions and rigidities, matching a large number of observable time series. We find that both foreign and domestic shocks are important drivers of the Australian business cycle. We also find that the initial impact on inflation of an increase in demand for Australian commodities is negative, because of an improvement in the real exchange rate, although there is a persistent positive effect on inflation that dominates at longer horizons.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 588.

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Date of creation: Mar 2011
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Handle: RePEc:bge:wpaper:588

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Keywords: New Keynesian open economy; Bayesian estimation; DSGE models; Australian Business cycle;

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  1. Yu-chin Chen & Kenneth Rogoff & Barbara Rossi, 2008. "Can Exchange Rates Forecast Commodity Prices?," Working Papers, University of Washington, Department of Economics UWEC-2008-11-FC, University of Washington, Department of Economics, revised Oct 2009.
  2. Martin Melecky & Daniel Buncic, 2005. "An Estimated, New Keynesian Policy Model for Australia," Macroeconomics, EconWPA 0511026, EconWPA.
  3. Altig, David E & Christiano, Lawrence J. & Eichenbaum, Martin & Lindé, Jesper, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4858, C.E.P.R. Discussion Papers.
  4. Alejandro Justiniano & Bruce Preston, 2006. "Can Structural Small Open Economy Models Account For The Influence Of Foreign Disturbances?," CAMA Working Papers 2006-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Online Appendix to "Firm-Specific Capital, Nominal Rigidities and the Business Cycle"," Technical Appendices 09-191, Review of Economic Dynamics.
  6. Kristoffer P. Nimark, 2009. "A Structural Model of Australia as a Small Open Economy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(1), pages 24-41, 03.
  7. Marco Del Negro & Frank Schorfheide, 2008. "Forming priors for DSGE models (and how it affects the assessment of nominal rigidities)," Staff Reports 320, Federal Reserve Bank of New York.
  8. Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-42, December.
  9. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, Elsevier, vol. 115(2), pages 293-346, August.
  10. Mardi Dungey & Adrian Pagan, 2008. "Extending an SVAR Model of the Australian Economy," NCER Working Paper Series, National Centre for Econometric Research 21, National Centre for Econometric Research.
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Cited by:
  1. Dungey, Mardi & Osborne, Denise, 2013. "International Transmissions to Australia: The Roles of the US and Euro Area," Working Papers, University of Tasmania, School of Economics and Finance 17208, University of Tasmania, School of Economics and Finance, revised 16 Oct 2013.
  2. 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.
  3. Malikane, Christopher & Ojah, Kalu, 2014. "Fisher's Relation and the Term Structure: Implications for IS Curves," MPRA Paper 55553, University Library of Munich, Germany.

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