International Shocks and the Role of Domestic Policy in Australia

Mardi Dungey

Australian Journal of Labour Economics (AJLE), 2002, vol. 5, issue 2, 143-163

Abstract: In the presence of large international disturbances small open economies are faced with difficult policy choices. International conditions impact on domestic outcomes. Using a structural VAR model of the Australian economy I explore the ways in which domestic monetary policy contributes to the output outcomes experienced in the economy. The focus is on the impact of international shocks. Monetary policy is modelled using a cash rate response to GNE, inflation and real exchange rate shocks. The results show that removing the focus on either GNE or inflation leads to lower GDP outcomes for the economy. The challenge for domestic policy is to recognise and respond to international and domestic shocks to the maximum benefit of the domestic economy.

Keywords: Monetary Policy (Targets, instruments, and Effects); Open Economy Macroeconomics (search for similar items in EconPapers)
JEL-codes: E52 F41 (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ozl:journl:v:5:y:2002:i:2:p:143-163

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