Australia's Resilience to Recession. This project aims to study why Australia differs from its OECD peers in that it has not had a recession for 27 years. It intends to generate knowledge by using economic models to solve 3 puzzles relating to Australia’s success: (i) why did foreign financial market shocks not spill over to the economy?; (ii) how has the resource curse that affects economies with a booming resource sector been avoided?; and (iii) what makes Australia special? Expected outcomes ....Australia's Resilience to Recession. This project aims to study why Australia differs from its OECD peers in that it has not had a recession for 27 years. It intends to generate knowledge by using economic models to solve 3 puzzles relating to Australia’s success: (i) why did foreign financial market shocks not spill over to the economy?; (ii) how has the resource curse that affects economies with a booming resource sector been avoided?; and (iii) what makes Australia special? Expected outcomes include the development of theoretical and empirical models that reflect the unique features of the Australian economy. This should provide significant benefits, including guidance to Australian and international policymakers on macroeconomic policies for resource-rich countries.Read moreRead less
Sins of the Fathers - The Role of Reputation in Capital Market Integration and the Choice of Exchange Rate Regime. This project investigates, theoretically and empirically, how past and present reputation for monetary policy credibility influences a country's choice of exchange rate regime and its ability to borrow internationally in domestic currency. The inability of emerging market countries to borrow in domestic currency is an important source of global financial instability, and the study c ....Sins of the Fathers - The Role of Reputation in Capital Market Integration and the Choice of Exchange Rate Regime. This project investigates, theoretically and empirically, how past and present reputation for monetary policy credibility influences a country's choice of exchange rate regime and its ability to borrow internationally in domestic currency. The inability of emerging market countries to borrow in domestic currency is an important source of global financial instability, and the study contributes to an understanding of how policymakers can better facilitate the process of international financial integration. By introducing new advances in the theory of reputation into models of exchange rate crises and examining lessons from Australian financial history, the research brings a fresh perspective to existing analyses of financial crises.Read moreRead less
Economic Growth and Real Exchange Rates. Exchange rate movements are important elements of Australia's economic environment. Protectionist interests in the US and Europe, constrained by WTO trade rules, accuse East Asian economies of deliberate undervaluation. While exchange rate movements are not readily predictable in the short run, long run changes in underlying real exchange rates are amenable to economic analysis using structural models. The clearer understanding of these forces, toward ....Economic Growth and Real Exchange Rates. Exchange rate movements are important elements of Australia's economic environment. Protectionist interests in the US and Europe, constrained by WTO trade rules, accuse East Asian economies of deliberate undervaluation. While exchange rate movements are not readily predictable in the short run, long run changes in underlying real exchange rates are amenable to economic analysis using structural models. The clearer understanding of these forces, toward which this project is directed, will better guide investment in the region, including in Australia, and more importantly, it will better inform future policy debates surrounding currency movements.Read moreRead less
Optimal policy in the global liquidity trap. The recent global financial crisis has led most central banks in developed economies to reduce their policy interest rates to unprecedentedly low levels. As a result, the liquidity trap has now become a serious concern internationally. This project will derive the optimal monetary and fiscal policy in the global liquidity trap. It will also show how a shock in one country affects other countries and propose tools for improving the empirical fit of the ....Optimal policy in the global liquidity trap. The recent global financial crisis has led most central banks in developed economies to reduce their policy interest rates to unprecedentedly low levels. As a result, the liquidity trap has now become a serious concern internationally. This project will derive the optimal monetary and fiscal policy in the global liquidity trap. It will also show how a shock in one country affects other countries and propose tools for improving the empirical fit of the models in a liquidity trap. This project will become the foundation for the discussion of policy options in the global liquidity trap.Read moreRead less
Monetary policy, redistribution and endogenous asset market incompleteness. This project aims to provide a new framework for modelling agent heterogeneity and for evaluating the effects of monetary policy on aggregate welfare and wealth distribution over the business cycle. This project will focus on monetary policy, using new quantitative theories with new efficient computational methods, to understand and quantify links between monetary policy the dynamics of aggregate outcomes (such as inflat ....Monetary policy, redistribution and endogenous asset market incompleteness. This project aims to provide a new framework for modelling agent heterogeneity and for evaluating the effects of monetary policy on aggregate welfare and wealth distribution over the business cycle. This project will focus on monetary policy, using new quantitative theories with new efficient computational methods, to understand and quantify links between monetary policy the dynamics of aggregate outcomes (such as inflation or employment), and the distribution of individual wealth (such as money, capital and housing).Read moreRead less
Commodity cycles. The implications of resource demand by emerging markets are issues policy makers need to understand. This project address these by focusing on currency, equity and commodity linkages, the financial market and macroeconomic effects of currency collapse, and the role of emerging markets in mitigating/amplifying economic shock transmission.
IMPROVING THE THEORETICAL COHERENCE OF DATA-DRIVEN VAR MODELS. The project seeks to improve the tradeoff between theoretical and empirical coherence that is often present in empirical macroeconomic models. Using existing Australian models the project examines appropriate means of imposing theoretical restrictions on empirically coherent Vector Autoregression (VAR) models. Building on work by the authors, an improved VAR model of the Australian economy will be developed. This model will be used t ....IMPROVING THE THEORETICAL COHERENCE OF DATA-DRIVEN VAR MODELS. The project seeks to improve the tradeoff between theoretical and empirical coherence that is often present in empirical macroeconomic models. Using existing Australian models the project examines appropriate means of imposing theoretical restrictions on empirically coherent Vector Autoregression (VAR) models. Building on work by the authors, an improved VAR model of the Australian economy will be developed. This model will be used to assess particularly the impact of asset prices on inflation and economic performance over the past two decades. Further attention will be paid to assessing the role of monetary policy in the Australian economy.Read moreRead less
Higher order moment contagion testing: implications of the US subprime mortgage crisis for Australia. Even though crises are usually short lived, the long term implications of changes in asset values may be profound, particularly for superannuation assets. Implications of financial crises are also profound for institutions such as the RBA who change policy to achieve domestic objectives. The understanding of how internationally based financial crises affect Australia is important particularly wh ....Higher order moment contagion testing: implications of the US subprime mortgage crisis for Australia. Even though crises are usually short lived, the long term implications of changes in asset values may be profound, particularly for superannuation assets. Implications of financial crises are also profound for institutions such as the RBA who change policy to achieve domestic objectives. The understanding of how internationally based financial crises affect Australia is important particularly when domestic inflationary pressures would appear to precipitate the need for the RBA to take the opposite policy stance to that prevalent of central banks internationally. This proposal highlights these relationships to provide insights into portfolio allocation decisions and provides information to facilitate well founded decisions by policy makers.Read moreRead less