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A Structural Model of Australia as a Small Open Economy

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Author Info
Kristoffer Nimark (Reserve Bank of Australia)

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Abstract

This paper sets up and estimates a structural model of Australia as a small open economy using Bayesian techniques. Unlike other recent studies, the paper shows that a small micro-founded model can capture the open economy dimensions quite well. Specifically, the model attributes a substantial fraction of the volatility of domestic output and inflation to foreign disturbances and matches the evidence from reduced-form studies. In addition, the model relies much less than other estimated models on a persistent shock to the risk premium to explain changes in the nominal exchange rate. The paper also investigates the effects of various exogenous shocks on the Australian economy.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2007-01.

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Date of creation: Feb 2007
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Handle: RePEc:rba:rbardp:rdp2007-01

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Related research
Keywords: small open economy; Australia; Bayesian methods;

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  1. Mardi Dungey & Adrian Pagan, 2008. "Extending an SVAR Model of the Australian Economy," NCER Working Paper Series 21, National Centre for Econometric Research. [Downloadable!]
    Other versions:
  2. Philip Liu, 2007. "Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?," CAMA Working Papers 2007-24, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  3. de Silva, Ashton, 2008. "Forecasting macroeconomic variables using a structural state space model," MPRA Paper 11060, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-12-2.

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