Premium
A Structural Model of Australia as a Small Open Economy
Author(s) -
Nimark Kristoffer P.
Publication year - 2009
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/j.1467-8462.2009.00523.x
Subject(s) - small open economy , economics , open economy , volatility (finance) , inflation (cosmology) , economy , bayesian probability , macroeconomics , econometrics , monetary policy , computer science , exchange rate , physics , artificial intelligence , theoretical physics
This paper sets up and estimates a structural model of Australia as a small open economy using Bayesian techniques. Unlike other recent studies, the paper shows that a small micro‐founded model can capture the open economy dimensions quite well. Specifically, the model attributes a substantial fraction of the volatility of domestic output and inflation to foreign disturbances, close to what is suggested by unrestricted VAR studies. The paper also investigates the effects of various exogenous shocks on the Australian economy.