28 Pages Posted: 17 Jun 2011
Date Written: June 1, 2011
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
JEL Classification: C43, E32
Suggested Citation: Suggested Citation
Claus, Edda and Chua, Chew Lian and Lim, Guay C., Regional Indexes of Activity: Combining the Old with the New (June 1, 2011). Melbourne Institute Working Paper No. 15/11. Available at SSRN: https://ssrn.com/abstract=1864523 or http://dx.doi.org/10.2139/ssrn.1864523