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On the contribution of international shocks in Australian business cycle fluctuations

On the contribution of international shocks in Australian business cycle fluctuations What proportion of Australian business cycle fluctuations are caused by interna- tional shocks? We address this question by estimating a panel VAR model that has time-varying parameters and a common stochastic volatility factor. The time-varying parameters capture the inter-temporal nature of Australia’s various bilateral trade rela- tionships, while the common stochastic volatility factor captures various episodes of volatility clustering among macroeconomic shocks, e.g., the 1997/98 Asian Financial Crisis and the 2007/08 Global Financial Crisis. Our main result is that international shocks from Australia’s five largest trading partners: China, Japan, the EU, the USA and the Republic of Korea, have caused around half of all Australian business cycle fluctuations over the past two decades. We also find important changes in the relative importance of each country’s economic impact. For instance, China’s positive con- tribution increased throughout the mining boom of the 2000s, while the overall US influence has almost halved since the 1990s. Keywords Australian economy · Business cycles · Panel VAR · Stochastic volatility 1 Introduction Following the seminal work of Dungey and Pagan (2000), structural vector autore- gression (SVAR) models have been the primary tool for modeling macroeconomic We thank Sharada Davidson and Yiqiao Sun for useful comments http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Empirical Economics Springer Journals

On the contribution of international shocks in Australian business cycle fluctuations

Empirical Economics , Volume OnlineFirst – Aug 10, 2019

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References (54)

Publisher
Springer Journals
Copyright
Copyright © 2019 by Springer-Verlag GmbH Germany, part of Springer Nature
Subject
Economics; Econometrics; Statistics for Business, Management, Economics, Finance, Insurance; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
0377-7332
eISSN
1435-8921
DOI
10.1007/s00181-019-01752-y
Publisher site
See Article on Publisher Site

Abstract

What proportion of Australian business cycle fluctuations are caused by interna- tional shocks? We address this question by estimating a panel VAR model that has time-varying parameters and a common stochastic volatility factor. The time-varying parameters capture the inter-temporal nature of Australia’s various bilateral trade rela- tionships, while the common stochastic volatility factor captures various episodes of volatility clustering among macroeconomic shocks, e.g., the 1997/98 Asian Financial Crisis and the 2007/08 Global Financial Crisis. Our main result is that international shocks from Australia’s five largest trading partners: China, Japan, the EU, the USA and the Republic of Korea, have caused around half of all Australian business cycle fluctuations over the past two decades. We also find important changes in the relative importance of each country’s economic impact. For instance, China’s positive con- tribution increased throughout the mining boom of the 2000s, while the overall US influence has almost halved since the 1990s. Keywords Australian economy · Business cycles · Panel VAR · Stochastic volatility 1 Introduction Following the seminal work of Dungey and Pagan (2000), structural vector autore- gression (SVAR) models have been the primary tool for modeling macroeconomic We thank Sharada Davidson and Yiqiao Sun for useful comments

Journal

Empirical EconomicsSpringer Journals

Published: Aug 10, 2019

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