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A simple, structural, and empirical model of the antipodean transmission mechanism

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  • Thomas Lubik

Abstract

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 as well as 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% of the observed exchange rate volatility.

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  • Thomas Lubik, 2006. "A simple, structural, and empirical model of the antipodean transmission mechanism," New Zealand Economic Papers, Taylor & Francis Journals, vol. 40(2), pages 91-126.
    • Handle: RePEc:taf:nzecpp:v:40:y:2006:i:2:p:91-126
    DOI: 10.1080/00779954.2006.9558557
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    Cited by:

    1. Daniel Buncic & Martin Melecky, 2008. "An Estimated New Keynesian Policy Model for Australia," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 1-16, March.
    2. Alfred A. Haug & Christie Smith, 2012. "Local Linear Impulse Responses for a Small Open Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(3), pages 470-492, June.
    3. Martin Melecky, 2008. "A Structural Investigation of Third‐Currency Shocks to Bilateral Exchange Rates," International Finance, Wiley Blackwell, vol. 11(1), pages 19-48, May.
    4. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
    5. Gallic, Ewen & Vermandel, Gauthier, 2020. "Weather shocks," European Economic Review, Elsevier, vol. 124(C).
    6. Ms. Keiko Honjo & Mr. Benjamin L Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers 2006/262, International Monetary Fund.

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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • 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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