International Shocks on Australia - the Japanese Effect

25 Pages Posted: 16 Sep 2003

See all articles by Mardi Dungey

Mardi Dungey

University of Cambridge - Cambridge Endowment for Research in Finance (CERF)

Renee Fry

Australian National University (ANU) - Department of Economics

Abstract

Although Australia has an equivalently large trading relationship with Japan and the US, current macro models often incorporate only US variables in the external sector of Australia. This paper explores the consequences of including both US and Japanese effects in the international sector of a SVAR model of Australia. The results indicate the significance of the Japanese effects. Excluding Japan results in an overstatement of the impact of US based shocks on the Australian economy. When Japan is included, US based shocks remain dominant in explaining Australian outcomes, but the responses are moderated compared with a model incorporating only a US based external sector. This has important implications for domestic policy responses to international shocks. Without the influence of Japan, domestic monetary policy will over-react to a US based shock.

Suggested Citation

Dungey, Mardi and Fry, Renee, International Shocks on Australia - the Japanese Effect. Available at SSRN: https://ssrn.com/abstract=416102

Mardi Dungey (Contact Author)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.dungey.bigpondhosting.com

Renee Fry

Australian National University (ANU) - Department of Economics ( email )

Canberra, Australian Capital Territory 2600
Australia

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