How Australia Has Been Affected by US Monetary and Fiscal Policies: 1960 to 2022

Jonathan Leightner ()
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Jonathan Leightner: Hull College of Business, Summerville Campus, Augusta University, 1120 15th Street, Augusta, GA 30912, USA

JRFM, 2024, vol. 17, issue 3, 1-17

Abstract: This paper uses Reiterative Truncated Projected Least Squares to estimate the effects of US monetary and fiscal policy on Australia using quarterly data between 1960 and 2022. When Australia had a fixed exchange rate (1960–1983), both US fiscal and monetary policies were positively correlated with Australia’s GDP, which fits the predictions of a small-country IS/LM/BP model with relatively immobile capital. When Australia had a flexible exchange rate (1984–2022), US fiscal policy was positively correlated with Australia’s GDP, but US monetary policy was negatively correlated with Australia’s GDP, which fits the predictions of a large-country IS/LM/BP model.

Keywords: Australia; USA; exchange rate regime; large-country IS/LM/BP; Mundell–Fleming model; small-country IS/LM/BP; capital controls; spillover effects (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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