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A Medium‐Scale New Keynesian Open Economy Model of Australia

  • JARKKO P. JÄÄSKELÄ
  • KRISTOFFER NIMARK

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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File URL: http://hdl.handle.net/10.1111/j.1475-4932.2010.00688.x
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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 87 (2011)
Issue (Month): 276 (March)
Pages: 11-36

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Handle: RePEc:bla:ecorec:v:87:y:2011:i:276:p:11-36
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  1. Yu-Chin Chen & Kenneth S. Rogoff & Barbara Rossi, 2010. "Can Exchange Rates Forecast Commodity Prices?," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1145-1194, August.
  2. Justiniano, Alejandro & Preston, Bruce, 2010. "Can structural small open-economy models account for the influence of foreign disturbances?," Journal of International Economics, Elsevier, vol. 81(1), pages 61-74, May.
  3. Frank Schorfheide & Marco Del Negro, 2007. "Forming Priors for DSGE Models (and How It Affects the Assessment of Nominal Rigidities)," 2007 Meeting Papers 283, Society for Economic Dynamics.
  4. Buncic, Daniel & Melecky, Martin, 2007. "An estimated New Keynesian policy model for Australia," MPRA Paper 4138, University Library of Munich, Germany.
  5. David Altig & Lawrence J. Christiano & Martin Eichenbaum & Jesper Linde, 2010. "Firm-specific capital, nominal rigidities and the business cycle," International Finance Discussion Papers 990, Board of Governors of the Federal Reserve System (U.S.).
  6. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
  7. 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.
  8. 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.
  9. 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.
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