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International Shocks and the Role of Domestic Policy in Australia

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  • Mardi Dungey

Abstract

In the presence of large international disturbances small open economies are faced with difficult policy choices. International conditions impact on domestic outcomes. Using a structural VAR model of the Australian economy I explore the ways in which domestic monetary policy contributes to the output outcomes experienced in the economy. The focus is on the impact of international shocks. Monetary policy is modelled using a cash rate response to GNE, inflation and real exchange rate shocks. The results show that removing the focus on either GNE or inflation leads to lower GDP outcomes for the economy. The challenge for domestic policy is to recognise and respond to international and domestic shocks to the maximum benefit of the domestic economy.
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Suggested Citation

  • 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.
    • Handle: RePEc:auu:dpaper:443
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    File URL: https://www.cbe.anu.edu.au/researchpapers/CEPR/DP443.pdf
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    Cited by:

    1. Philip Liu, 2010. "The Effects of International Shocks on Australia's Business Cycle," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 486-503, December.
    2. Mardi Dungey & Adrian Pagan, 2009. "Extending a SVAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 1-20, March.
    3. Philip Liu, 2007. "Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?," CAMA Working Papers 2007-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Oladunni, Sunday, 2019. "External Shocks and Business Cycle Fluctuations in Oil-exporting Small Open Economies: The Case of Nigeria," MPRA Paper 98639, University Library of Munich, Germany.
    5. Philip Liu, 2008. "The Role of International Shocks in Australia’s Business Cycle," RBA Research Discussion Papers rdp2008-08, Reserve Bank of Australia.

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    More about this item

    Keywords

    VAR; open economy; monetary policy;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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