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Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?

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  • Philip Liu

Abstract

This paper examines the sources of Australia’s business cycle fluctuations focusing on the role of international shocks and short run stabilization policy. A VAR model identified using robust sign restrictions derived from an estimated structural model is used to aid the investigation. The results indicate that, in contrast to previous VAR studies, foreign factors contribute over half of domestic output forecast errors whereas innovation from output itself has little effect. Furthermore, monetary policy was largely successful in mitigating the business cycle fluctuations in a counter-cyclical fashion while the floating exchange rate also help offset foreign disturbances. For Australia’s stable economic success, good policy helped but so did good luck.

Suggested Citation

  • 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.
    • Handle: RePEc:een:camaaa:2007-24
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-06/24_liu_2007.pdf
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    Cited by:

    1. Vonnák Balázs, 2010. "Risk Premium Shocks, Monetary Policy and Exchange Rate Pass-Through in the Czech Republic, Hungary and Poland," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 28(61), pages 306-351, August.
    2. Bálint Tamási & Balázs Világi, 2011. "Identification of credit supply shocks in a Bayesian SVAR model of the Hungarian economy," MNB Working Papers 2011/7, Magyar Nemzeti Bank (Central Bank of Hungary).
    3. Tim Robinson, 2013. "Estimating and Identifying Empirical BVAR-DSGE Models for Small Open Economies," RBA Research Discussion Papers rdp2013-06, Reserve Bank of Australia.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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