Regional Indexes of Activity: Combining the Old with the New
University of Melbourne
Chew Lian Chua
University of Melbourne - Melbourne Institute of Applied Economic and Social Research
Guay C. Lim
University of Melbourne - Melbourne Institute of Applied Economic and Social Research (MIAESR)
June 1, 2011
Melbourne Institute Working Paper No. 15/11
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.
Number of Pages in PDF File: 28
Keywords: regional economic activity, coincident indicators, dynamic latent factor model
JEL Classification: C43, E32
Date posted: June 17, 2011
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