STABILIZING THE AUSTRALIAN BUSINESS CYCLE: GOOD LUCK OR GOOD POLICY?

CAMA Working Papers from Australian National University, Centre for Applied Macroeconomic Analysis

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.

JEL-codes: E32 E52 E63 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: Written 2007-11
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