Supply Shocks and Net Exports: Some Evidence for Australia

John F Scoggins

Journal of Money, Credit and Banking, 1993, vol. 25, issue 4, 780-85

Abstract: The theory of intertemporal substitution predicts that households will attempt to smooth the fluctuations in consumption caused by temporary supply shocks. This substitution leads to an increase in the short-term interest rate when temporary decreases in supply occur. Observing agricultural supply shocks, Dave Denslow and Mark Rush (1989) found evidence to support this theory in a closed economy (nineteenth century France). In an open economy, a temporary drop in agricultural output would decrease net exports rather than affect the interest rate. Evidence to support this theory is found using twentieth-century Australian data. Copyright 1993 by Ohio State University Press.

Date: 1993
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