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International Transmissions to Australia: The Roles of the US and Euro Area

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Abstract

This paper examines the influences of the two largest developed economies, namely the US and the Euro area, on Australia as an exemplar of a small open economy. To do so, we specify and estimate a structural VAR with bilateral linkages between the two large economies, and allow shocks originating there to affect the Australian economy. More specifically, we show the role of foreign demand shocks, the differential effects of US or European sourced inflation and interest rate shocks on the Australian economy, and the relative unimportance of these foreign shocks to variations in the value of the Australian currency

Suggested Citation

  • Dungey, Mardi & Osborne, Denise, 2013. "International Transmissions to Australia: The Roles of the US and Euro Area," Working Papers 17208, University of Tasmania, Tasmanian School of Business and Economics, revised 16 Oct 2013.
  • Handle: RePEc:tas:wpaper:17208
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    File URL: http://eprints.utas.edu.au/17208/1/2013-10_DunOsbRag.pdf
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    References listed on IDEAS

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    1. Edda Claus & Mardi Dungey & Renée Fry, 2008. "Monetary Policy in Illiquid Markets: Options for a Small Open Economy," Open Economies Review, Springer, vol. 19(3), pages 305-336, July.
    2. 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.
    3. Sean Langcake & Tim Robinson, 2013. "An Empirical BVAR-DSGE Model of the Australian Economy," RBA Research Discussion Papers rdp2013-07, Reserve Bank of Australia.
    4. Anderson, Heather M. & Dungey, Mardi & Osborn, Denise R. & Vahid, Farshid, 2011. "Financial integration and the construction of historical financial data for the Euro Area," Economic Modelling, Elsevier, vol. 28(4), pages 1498-1509, July.
    5. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
    6. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
    7. Lee, Hyun-Hoon & Huh, Hyeon-Seung & Harris, David, 2003. "The relative impact of the US and Japanese business cycles on the Australian economy," Japan and the World Economy, Elsevier, vol. 15(1), pages 111-129, January.
    8. Milani, Fabio, 2010. "Global slack and domestic inflation rates: A structural investigation for G-7 countries," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 968-981, December.
    9. Kristoffer P. Nimark, 2009. "A Structural Model of Australia as a Small Open Economy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(1), pages 24-41, March.
    10. Guerron-Quintana, Pablo A., 2013. "Common and idiosyncratic disturbances in developed small open economies," Journal of International Economics, Elsevier, vol. 90(1), pages 33-49.
    11. Leu, Shawn Chen-Yu, 2011. "A New Keynesian SVAR model of the Australian economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 157-168, January.
    12. Rabanal, Pau & Rubio-Ramírez, Juan F. & Tuesta, Vicente, 2011. "Cointegrated TFP processes and international business cycles," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 156-171, March.
    13. Jarkko P. Jääskelä & Kristoffer Nimark, 2011. "A Medium‐Scale New Keynesian Open Economy Model of Australia," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 11-36, March.
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    15. Sack, Brian & Wieland, Volker, 2000. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 205-228.
    16. Leu, Shawn Chen-Yu & Sheen, Jeffrey, 2011. "A small New Keynesian state space model of the Australian economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 672-684, January.
    17. Mardi Dungey & Renee Fry-McKibbin & Verity Linehan, 2014. "Chinese resource demand and the natural resource supplier," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 167-178, January.
    18. Lance A. Fisher & Hyeon-seung Huh & Adrian R. Pagan, 2013. "Econometric Issues when Modelling with a Mixture of I(1) and I(0) Variables," Working papers 2013rwp-61, Yonsei University, Yonsei Economics Research Institute.
    19. Michael Plumb & Christopher Kent & James Bishop, 2013. "Implications for the Australian Economy of Strong Growth in Asia," RBA Research Discussion Papers rdp2013-03, Reserve Bank of Australia.
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    Cited by:

    1. Mala Raghavan & Mardi Dungey, 2015. "Should ASEAN-5 monetary policy-makers act pre-emptively against stock market bubbles?," Applied Economics, Taylor & Francis Journals, vol. 47(11), pages 1086-1105, March.
    2. Tng Boon Hwa & Mala Raghavan & Teh Tian Huey, 2017. "Macroeconomic surveillance of portfolio flows and its real effects: Malaysia's experience," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43 Bank for International Settlements.
    3. Georgiadis, Georgios & Jancokova, Martina, 2017. "Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks," Globalization and Monetary Policy Institute Working Paper 314, Federal Reserve Bank of Dallas.
    4. repec:bla:ecorec:v:93:y:2017:i:302:p:465-483 is not listed on IDEAS

    More about this item

    Keywords

    VAR; open economy; Australia;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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