A small New Keynesian state space model of the Australian economy |
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| Authors: | Shawn Chen-Yu Leu Jeffrey Sheen |
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| Institution: | 1. School of Economics, Yonsei University, 50 Yonsei-ro, Seodaemun-Gu, Seoul 120-749, Republic of Korea;2. Tepper School 256, Carnegie Mellon University, Pittsburgh, PA 15213, USA;3. National Bureau of Economic Research, Cambridge, MA 02138, USA;1. Department of International Trade, Soongsil University, 369 Sangdo-Ro, Dongjak_gu, Seoul 156-743, Republic of Korea;2. Department of Economics, Korea University, 145 Anam-Ro, Seongbuk-Gu, Seoul 136-701, Republic of Korea |
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| Abstract: | Using a small New Keynesian state space macroeconomic model, we apply maximum likelihood estimation and the Kalman filter to obtain joint estimates of the unobservable medium-run paths of potential output and its normal rate of growth, the NAIRU, the neutral real interest rate and the subjective discount factor for Australia from 1984Q1 to 2006Q4. Using the estimated model we obtain dynamic forecasts for output, unemployment, and inflation to compare with the actual data from 2007Q1 to 2008Q4. Combining the estimated model with a monetary policy rule, we examine impulse responses of inflation and the output and unemployment gaps to shocks associated with the global financial crisis of 2008. |
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