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Regional Indexes of Activity: Combining the Old with the New

Author

Listed:
  • Edda Claus

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Chew Lian Chua

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • G. C. Lim

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper proposes a framework to construct indexes of activity which links two strands of the index literature – the traditional business cycle analysis and the latent variable approach. To illustrate the method, we apply the framework to Australian regional data, namely to two resource-rich and two service-based states. The results reveal differences in the evolution and drivers of economic activity across the four states. We also demonstrate the value of the Index in a broader context by using a structural vector autoregression (SVAR) approach to analyse the effects of shocks from the US and from China. This Index-SVAR approach facilitates a richer analysis because the unique feature of the index method proposed here allows impulse responses to be traced back to the components.

Suggested Citation

  • Edda Claus & Chew Lian Chua & G. C. Lim, 2011. "Regional Indexes of Activity: Combining the Old with the New," Melbourne Institute Working Paper Series wp2011n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2011n15
    as

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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2011n15.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Regional economic activity; coincident indicators; dynamic latent factor model;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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