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International Transmissions to Australia: The Roles of the USA and Euro Area
Author(s) -
Dungey Mardi,
Osborn Denise,
Raghavan Mala
Publication year - 2014
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.12137
Subject(s) - economics , inflation (cosmology) , currency , value (mathematics) , differential (mechanical device) , open economy , international economics , small open economy , world economy , economy , monetary economics , monetary policy , international trade , exchange rate , political science , physics , engineering , machine learning , theoretical physics , computer science , law , aerospace engineering
This paper examines the influences of the world's two largest developed economies, namely the USA and the Euro area, on Australia as an exemplar of a small open economy. To do so, we specify and estimate a structural VAR with bilateral linkages between the two large economies, and allow shocks originating in either to affect the Australian economy. More specifically, we show the role of foreign output shocks, the differential effects of USA‐ or Euro‐area‐sourced inflation and interest rate shocks on the Australian economy, and the relative unimportance of these foreign shocks to variations in the value of the Australian currency.