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Consumption, Investment and International Linkages

Author

Listed:
  • Guy Debelle

    (Reserve Bank of Australia)

  • Bruce Preston

    (Reserve Bank of Australia)

Abstract

This paper seeks to explain the strong contemporaneous relationship between Australian and foreign output growth. It does so by adopting a more disaggregated approach than previous work, focussing in particular on consumption and investment. The theoretical frameworks of the permanent income hypothesis for consumption and the cash flow version of the neo-classical model of investment are used to identify potential foreign linkages. Some evidence of a foreign linkage through consumption is established. Little evidence is found of foreign influences on domestic investment, although an indirect channel operating through business confidence is identified. The paper also provides evidence of a decline in liquidity constraints since financial deregulation, and confirms previous evidence of the importance of cash flow in determining investment.

Suggested Citation

  • Guy Debelle & Bruce Preston, 1995. "Consumption, Investment and International Linkages," RBA Research Discussion Papers rdp9512, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9512
    as

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    File URL: https://www.rba.gov.au/publications/rdp/1995/pdf/rdp9512.pdf
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    References listed on IDEAS

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    9. repec:fth:harver:1435 is not listed on IDEAS
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    Citations

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    Cited by:

    1. David Gruen & John Romalis & Naveen Chandra, 1999. "The Lags of Monetary Policy," The Economic Record, The Economic Society of Australia, vol. 75(3), pages 280-294, September.
    2. Konstantinos Kassimatis, 2008. "Size, Book to Market and Momentum Effects in the Australian Stock Market," Australian Journal of Management, Australian School of Business, vol. 33(1), pages 145-168, June.
    3. Dan Andrews & Marion Kohler, 2005. "International Business Cycle Co-movements through Time," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & David Norman (ed.),The Changing Nature of the Business Cycle, Reserve Bank of Australia.
    4. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, June.
    5. Narayan, Paresh Kumar, 2008. "An investigation of the behaviour of Australia's business cycle," Economic Modelling, Elsevier, vol. 25(4), pages 676-683, July.
    6. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486, January.
    7. Ellis Connolly & Marion Kohler, 2004. "The Impact of Superannuation on Household Saving," RBA Research Discussion Papers rdp2004-01, Reserve Bank of Australia.
    8. Alejandro Justiniano, 2004. "Sources and Propagation Mechanims of Foreign Disturbances in Small Open Economies: A Dynamic Factor Analysis," Econometric Society 2004 Latin American Meetings 148, Econometric Society.
    9. David M. Williams, 2010. "Consumption, wealth and credit liberalisation in Australia," Economics Series Working Papers 492, University of Oxford, Department of Economics.

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