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Estimating An Optimal Macroeconomic Uncertainty Index For Australia

Author

Listed:
  • Havvanur Feyza Erdem

    (Department of Econometrics, Karadeniz Technical University)

  • George Tawadros

    (Department of Economics and Management, DePauw University)

Abstract

In this article, an optimal macroeconomic uncertainty index is constructed for the Australian economy. This index is derived from a small structural macroeconomic model. The structural model is first estimated using GMM to extract the parameter estimates, which are then used to initialise maximum likelihood techniques in order to obtain the optimal coefficient values for the relevant variables. The relevant variables are then weighted by the obtained optimal coefficients and, finally, are aggregated to produce the optimal macroeconomic uncertainty index for Australian economy. The empirical results show that the uncertainty index constructed is a good indicator of the optimal economic conditions in Australia, providing a useful tool to assist the Reserve Bank of Australia in its decision-making process.

Suggested Citation

  • Havvanur Feyza Erdem & George Tawadros, 2020. "Estimating An Optimal Macroeconomic Uncertainty Index For Australia," Working Papers 2020-02, DePauw University, School of Business and Leadership and Department of Economics and Management.
    • Handle: RePEc:dew:wpaper:2020-02
    as

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    File URL: https://scholarship.depauw.edu/cgi/viewcontent.cgi?article=1015&context=dew
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    References listed on IDEAS

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    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • 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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