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Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?

  • Philip Liu

    ()

This paper examines the sources of Australia's business cycle fluctuations focusing on the role of international shocks and short run stabilization policy. A VAR model identified using robust sign restrictions derived from an estimated structural model is used to aid the investigation. The results indicate that, in contrast to previous VAR studies, foreign factors contribute over half of domestic output forecast errors whereas innovation from output itself has little effect. Furthermore, monetary policy was largely successful in mitigating the business cycle fluctuations in a counter-cyclical fashion while the floating exchange rate also help offset foreign disturbances. For Australia's stable economic success, good policy helped but so did good luck.

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File URL: http://cbe.anu.edu.au/research/papers/camawpapers/Papers/2007/Liu_242007.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2007-24.

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Length: 40 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:een:camaaa:2007-24
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  1. Kristoffer Nimark, 2007. "A Structural Model of Australia as a Small Open Economy," RBA Research Discussion Papers rdp2007-01, Reserve Bank of Australia.
  2. Mardi Dungey, 2001. "International Shocks and the Role of Domestic Policy in Australia," CEPR Discussion Papers 443, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  3. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
  4. Peersman, Gert, 2003. "What Caused the Early Millennium Slowdown? Evidence Based on Vector Autoregressions," CEPR Discussion Papers 4087, C.E.P.R. Discussion Papers.
  5. G. Peersman & R. Straub, 2005. "Technology Shocks and Robust Sign Restrictions in a Euro Area SVAR," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/288, Ghent University, Faculty of Economics and Business Administration.
  6. Charles Nelson & Eric Zivot, 2000. "Why are Beveridge-Nelson and Unobserved-Component Decompositions of GDP so Different?," Econometric Society World Congress 2000 Contributed Papers 0692, Econometric Society.
  7. Heather M. Anderson & Chin Nam Low & Ralph Snyder, 2004. "Single Source of Error State Space Approach to the Beveridge Nelson Decomposition," Monash Econometrics and Business Statistics Working Papers 21/04, Monash University, Department of Econometrics and Business Statistics.
  8. Andrea Brischetto & Graham Voss, 1999. "A Structural Vector Autoregression Model of Monetary Policy in Australia," RBA Research Discussion Papers rdp1999-11, Reserve Bank of Australia.
  9. John Geweke, 1999. "Using simulation methods for bayesian econometric models: inference, development,and communication," Econometric Reviews, Taylor & Francis Journals, vol. 18(1), pages 1-73.
  10. K. Farrant & G. Peersman, 2005. "Is the exchange rate a shock absorber or a source of shocks? New empirical evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/285, Ghent University, Faculty of Economics and Business Administration.
  11. Christian Gillitzer & Jonathan Kearns & Anthony Richards, 2005. "The Australian Business Cycle: A Coincident Indicator Approach," RBA Annual Conference Volume, in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
  12. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  13. Martin Fukac & Adrian Pagan, 2006. "Issues in Adopting DSGE Models for Use in the Policy Process," Working Papers 2006/6, Czech National Bank, Research Department.
  14. 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.
  15. Renee Fry & Adrian Pagan, 2005. "Some Issues In Using Vars For Macroeconometric Research," CAMA Working Papers 2005-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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