This paper studies the transmission of business cycles and the sources of economic fluctuations in Australia and New Zealand by estimating a Bayesian DSGE model. The theoretical model is that of two open economies that are tightly integrated by trade in goods and assets. They can be thought of as economically large relative to each other, but small with respect to the rest of the world. The two economies are hit by a variety of country-specific and world-wide shocks. The main findings are that the pre-eminent driving forces of Antipodean business cycles are worldwide technology shocks and foreign, i.e. rest-of-the-world, expenditure shocks. Domestic technology shocks and monetary policy shocks appear to play only a minor role. Transmission of policy shocks is asymmetric, and neither central bank is found to respond to exchange rate movements. The model can explain 15 percent of the observed exchange rate volatility.
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Find related papers by JEL classification: C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993.
"International Business Cycles,"
American Economic Review,
American Economic Association, vol. 83(3), pages 335-59, June.
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Ahmed, S. & Ickes, B. & Wang, P. & Yoo, S., 1989.
"International Business Cycles,"
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7-89-4, Pennsylvania State - Department of Economics.
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