Quantifying the effect of GST on inflation in eight Australian cities: an intervention analysis

This article examines the magnitude and duration of the effect of the Goods and Services Tax(GST) on inflation in Australia's eight capital cities using the Box and Tiao intervention analysis and quarterly data spanning from 1948:4 to 2003:l. We found that the GST had a significant but transitory impact on inflation only in the September quarter of 2000 when this new tax system was implemented. In this quarter inflation showed an additional increase of 2.6 per cent in Sydney (minimum effect) and 2.8 per cent in Australia as a whole, and the figure for Hobart was 3.3 per cent (maximum effect). Based on Wald test results, we also found some evidence that there is no significant (or substantial) difference in the average price changes among capital cities. We could not reject the null hypothesis that the GST increased the consumer price index by 2.8 per cent across the board in various cities. These results are also consistent with previous studies and surveys

The Regional Appropriateness of Monetary Policy: An Application of Taylor’s Rule to Australian States and Territories

In recent years Taylor’s rule has become a widely used tool for assessing the stance of monetary policy. Not only has it been used to evaluate the U.S. Federal Reserve’s monetary policy, but also, for example, to evaluate the appropriateness of the European Central Bank’s monetary policy for each individual member nation of the European Monetary Union. This paper builds on this work and uses Taylor’s rule to evaluate the degree of appropriateness of Australia’s national monetary policy to each of Australia’s states and territories. National monetary policy is represented by the overnight cash rate and this is compared to a notional cash rate calculated for each individual state and territory. The aim is to illustrate the extent to which national monetary policy historically may have deviated from what might have been most appropriate for the economic conditions of each state and territory. To this end, three different recent monetary policy episodes are analysed from a regional perspective. Moreover, an analysis of the disparities between the Australian states’ and territories’ notional cash rates with the actual national cash rate suggests – perhaps not too surprisingly - that the Reserve Bank of Australia implicitly sets national cash rates in close accordance with the economic conditions of Australia’s two most populous states.Taylor’s rule, monetary policy, Reserve Bank of Australia, regional

WHAT IS A RECESSION?: A REPRISE.

This paper draws its title from a paper written over 30 years ago by Geoffrey H. Moore (1967). Why the need for a reprise? First, there would appear currently to be somewhat diverging views – particularly in Australia – as to what properly constitutes a recession. Second, largely as a result of this, in Australia and many other countries other than the US, there is no single widely-accepted business cycle chronology for the country in question. This paper will argue that in addition to an output dimension, there are other important dimensions to aggregate economic activity which need to be taken into account in determining the business cycle, viz., income, sales and employment. As such, our perspective would seem to be at odds with the apparent position taken by other recent Australian commentators on this issue who argue that GDP is all that is needed to represent Australia’s business cycle. We will also argue strongly against using the currently popular ‘two negative quarterly growth rate’ rule in dating the onset of a recession.

Quantifying the Effect of GST on Inflation in Australia’s Capital Cities: An Intervention Analysis

This paper examines the magnitude and duration of the GST effect on inflation in Australia’s eight major capital cities using the Box and Tiao intervention analysis and quarterly data spanning from 1948:4 to 2003:1. We found that GST had a significant but transitory impact on inflation only in the September quarter of 2000 when this new tax system was implemented. In this quarter inflation showed an additional increase of 2.6 per cent in Sydney (minimum effect) and 2.8 per cent in Australia as a whole, the same figure for Hobart was 3.3 per cent (maximum effect). Based on the Wald test results, we have also found some evidence that there is no significant (or substantial) difference in the average price changes among major capital cities. We could not reject the null hypothesis that GST increased the CPI by 2.8 per cent across the board in various cities. These results are also consistent with previous studies/surveys.Intervention Analysis; State and Local Taxation; Australia.

Measures of National Export Price Volatility Based on the Capital Asset Pricing Model

As is the case with most small open economies, volatility in Australia’s export prices is an important source of national macroeconomic disturbance largely out of its control given its choice of export bundle. The Capital Asset Pricing Model of portfolio theory is employed as a useful framework for distinguishing the extent to which export price volatility consists of global versus country-specific risk for the set of 14 OECD countries investigated. We find that global (systematic) risk is evidently becoming more important for many of the countries in the OECD sample over the last 25 years as compared with the previous 25 year period. The paper also finds that, by a number of different measures, whilst Australia’s export price growth has apparently become more highly associated with World export prices in recent years, it nonetheless continues to have one of the more volatile set of export prices among OECD countries.

Is the 1990’s US Expansion Similar to the 1960’s?

Statistical similarities among the latest long expansion in the U.S. and some other past expansions, in particular that of the 1960s, are examined. Corresponding to the definition of statistical similarity, a test based on the covariance matrices of business cycle component variables for the different expansions is proposed. Among available tests, the test based on partial common principal component analysis is argued to be most appropriate. The test is applied to the components of both GDP and the composite coincident index. As a result, the 1990s expansion is concluded to be statistically similar to that of the 1960s.Business Cycle; Statistical Similarity; Covariance Matrix Structure;

Testing the Power of Leading Indicators to Predict Business Cycle Phase Changes

In the business cycle literature researchers often want to determine the extent to which models of the business cycle reproduce broad characteristics of the real world business cycle they purport to represent. Of considerable interest is whether a model’s implied cycle chronology is consistent with the actual business cycle chronology. In the US, a very widely accepted business cycle chronology is that compiled by the National Bureau of Economic research (NBER) and the vast majority of US business cycle scholars have, for many years, proceeded to test their models for their consistency with the NBER dates. In doing this, one of the most prevalent metrics in use since its introduction into the business cycle literature by Diebold and Rudebusch (1989) is the so-called quadratic probability score, or QPS. However, an important limitation to the use of the QPS statistic is that its sampling distribution is unknown so that rigorous statistical inference is not feasible. We suggest circumventing this by bootstrapping the distribution. This analysis yields some interesting insights into the relationship between statistical measures of goodness of fit of a model and the ability of the model to predict some underlying set of regimes of interest. Furthermore, in modeling the business cycle, a popular approach in recent years has been to use some variant of the so-called Markov regime switching (MRS) model first introduced by Hamilton (1989) and we therefore use MRS models as the framework for the paper. Of course, the approach could be applied to any US business cycle model.Markov Regime Switching, Business Cycle, Quadratic Probability Score

Multiple structural breaks in Australia's macroeconomic data: an application of the Lumsdaine and Papell Test

This paper employs all available annual time series data to endogenously determine the timing of structural breaks for 10 macroeconomic variables in the Australian economy. The ADF (Augmented Dickey and Fuller) test and the LP (Lumsdaine and Papell, 1997) test are used to examine the time series properties of the data. The ADF test results provide no evidence against the unit root null hypothesis in all ten macroeconomic variables. After accounting for the,two most significant structural breaks in the data impacting on both the intercept and trend, the results from the LP test indicate that the null of at least one unit root is rejected for four of the variables under investigation at the 10 per cent level or better. We also found that the dates of structural breaks in most cases point to: (a) the oil/wages shock occurring in the 1973-1975 period, (b) the 1990-1991 recession; (c) the culmination of financial deregulation and innovation in the late 1980s; and (4) the 1997 Asian crisis

DURATION DEPENDENCE IN THE US BUSINESS CYCLE

Durland and McCurdy (1994) investigated the issue of duration dependence in US business cycle phases using a Markov regime switching approach, introduced by Hamilton (1989) and extended to the case of variable transition parameters by Filardo (1994). In Durland and McCurdy’s model duration alone was used as an explanatory of the transition probabilities. They found that recessions were duration dependent whilst expansions were not. In this paper, we explicitly incorporate the widely-accepted US business cycle phase change dates as determined by the NBER, and use a state-dependent multinomial Logit (and Probit) modelling framework. The model incorporates both duration and movements in two leading indexes - one designed to have a short lead (SLI) and the other designed to have a longer lead (LLI) - as potential explanators. We find that doing so suggests that current duration is not only a significant determinant of transition out of recessions, but that there is some evidence that it is also weakly significant in the case of expansions. Furthermore, we find that SLI has more informational content for the termination of recessions whilst LLI does so for expansions.