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From West to East: Estimating External Spillovers to Australia and New Zealand

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  • Yan Sun
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    Abstract

    This paper examines the size and source of external spillovers to Australia and New Zealand based on a structural vector autoregression (VAR) approach. It finds that during the last decade shocks from emerging Asia have become more important than those from the United States in affecting Australia’s business cycle. A 1 percent shock to emerging Asia’s growth is found to shift Australian growth by about 1/3 percent. Furthermore, there is evidence that commodity prices dominate the transmission of shocks from emerging Asia to Australia. The influence of emerging Asia on New Zealand is found to come indirectly through Australia, with Australian shocks transmitting almost "one-on-one" to New Zealand, largely through financial factors.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/120.

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    Length: 21
    Date of creation: 01 May 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/120

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    Related research

    Keywords: Spillovers; Asia; Commodity prices; Emerging markets; External shocks; Financial sector; Regional shocks; Terms of trade;

    This paper has been announced in the following NEP Reports:

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    1. Kristoffer Nimark, 2007. "A Structural Model of Australia as a Small Open Economy," RBA Research Discussion Papers rdp2007-01, Reserve Bank of Australia.
    2. Philip Liu, 2010. "The Effects of International Shocks on Australia's Business Cycle," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 486-503, December.
    3. Tamim Bayoumi & Andrew Swiston, 2007. "Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries," IMF Working Papers 07/182, International Monetary Fund.
    4. Michael D. Bordo & David Hargreaves & Mizuho Kida, 2010. "Global shocks, economic growth and financial crises: 120 years of New Zealand experience," NBER Working Papers 16027, National Bureau of Economic Research, Inc.
    5. David Gillmore & Phil Briggs, 2010. "World trade interdependencies: a New Zealand perspective," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 73, pages 35-46, June.
    6. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
    7. Tamim Bayoumi & Andrew Swiston, 2008. "Spillovers Across NAFTA," IMF Working Papers 08/3, International Monetary Fund.
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