ESTIMATING AN OPTIMAL MACROECONOMIC UNCERTAINTY INDEX FOR AUSTRALIA

Havvanur Erdem and George Tawadros
Additional contact information
Havvanur Erdem: Department of Econometrics, Karadeniz Technical University
George Tawadros: Department of Economics and Management, DePauw University

No 2020-02, Working Papers from DePauw University, School of Business and Leadership and Department of Economics and Management

Abstract: In this article, an optimal macroeconomic uncertainty index is constructed for the Australian economy. This index is derived from a small structural macroeconomic model. The structural model is first estimated using GMM to extract the parameter estimates, which are then used to initialise maximum likelihood techniques in order to obtain the optimal coefficient values for the relevant variables. The relevant variables are then weighted by the obtained optimal coefficients and, finally, are aggregated to produce the optimal macroeconomic uncertainty index for Australian economy. The empirical results show that the uncertainty index constructed is a good indicator of the optimal economic conditions in Australia, providing a useful tool to assist the Reserve Bank of Australia in its decision-making process.

Keywords: Optimal Uncertainty Index; Central Bank; GMM; Optimization Algorithm (search for similar items in EconPapers)
JEL-codes: C36 C61 E58 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.depauw.edu/site/learn/dew/wpaper/worki ... tyIndexAustralia.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dew:wpaper:2020-02

Access Statistics for this paper

More papers in Working Papers from DePauw University, School of Business and Leadership and Department of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by Humberto Barreto ().