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Regional Indexes of Activity: Combining the Old with the New

28 Pages Posted: 17 Jun 2011  

Edda Claus

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

Date Written: June 1, 2011

Abstract

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

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

Edda Claus (Contact Author)

University of Melbourne ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Chew Lian Chua

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia
83443728 (Phone)

Guay C. Lim

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

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