Regional Indexes of Activity: Combining the Old with the New

Edda Claus, Chew Chua and Guay Lim

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: This paper proposes a framework to construct indexes of activity which links two strands of the index literature – the traditional business cycle analysis and the latent variable approach. To illustrate the method, we apply the framework to Australian regional data, namely to two resource-rich and two service-based states. The results reveal differences in the evolution and drivers of economic activity across the four states. We also demonstrate the value of the Index in a broader context by using a structural vector autoregression (SVAR) approach to analyse the effects of shocks from the US and from China. This Index-SVAR approach facilitates a richer analysis because the unique feature of the index method proposed here allows impulse responses to be traced back to the components.

Keywords: Regional economic activity; coincident indicators; dynamic latent factor model (search for similar items in EconPapers)
JEL-codes: C43 E32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-06
New Economics Papers: this item is included in nep-ecm and nep-geo
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2011n15

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