The Teaching of First Year Economics in Australian Universities*

This paper surveys current pedagogical practice in the teaching of introductory macroeconomics and microeconomics in Australian universities. Survey results are presented detailing lecturers’ approaches to their teaching over 2001 and other aspects of their teaching environment. A comparison of the content and methodology of the main textbooks used in Australian introductory economic courses is also presented.

Skills Mismatch and Returns to Training in Australia:Some New Evidence

This paper utilises Australian data to evaluate the effect of firm-provided job training on labour income. It also examines whether training can shed light on the effects of skill-job mismatch. We employ the Heckman selection model to account for selection bias in training as well as work participation. The evidence shows that training has a significant positive impact on wages. Also, training ameliorates the disadvantage associated with the mismatch between formal education and required education. In addition, training is most valuable to the undereducated and young workers, and assists in the restoration and replenishment of human capitalTraining; Education; Overeducation; Undereducation; Earnings; Human capital depreciation

Nowcasting, Business Cycle Dating and the Interpretation of New Information when Real Time Data are Available

A canonical model is described which reflects the real time informational context of decision-making. Comparisons are drawn with ‘conventional’ models that incorrectly omit market-informed insights on future macroeconomic conditions and inappropriately incorporate information that was not available at the time. It is argued that conventional models are misspecified and misinterpret news. However, neither diagnostic tests applied to the conventional models nor typical impulse response analysis will be able to expose these deficiencies clearly. This is demonstrated through an analysis of quarterly US data 1968q4-2006q1. However, estimated real time models considerably improve out-of- sample forecasting performance, provide more accurate ‘nowcasts’ of the current state of the macroeconomy and provide more timely indicators of the business cycle. The point is illustrated through an analysis of the US recessions of 1990q3—1991q2 and 2001q1— 2001q4.Structural Modelling; Real Time Data; Nowcasting; Business Cycles

Economic Activity and the Stock Market: The Asymmetric Impact of Fundamental and Non-Fundamental News

In this paper, we present a general model of the joint data generating process underlying economic activity and stock market returns allowing for complex nonlinear feedbacks and interdependencies between the conditional means and conditional volatilities of the variables. We propose statistics that capture the long and short run responses of the system to the arrival of fundamental and non-fundamental news, conditioning on the sign and time of arrival of the news. The model is applied to US data. We find that there are significant differences between the short and long run responses of economic activity and stock returns to the arrival of news. Moreover, for certain classifications of news, the respective responses of economic activity and stock returns vary according to the nature of the news and the phase of the business cycle at which the news arrivesNonlinearity; Asymmetry; Stochastic Simulation; Business Cycle

Testing for Rate-Dependence and Asymmetry in Inflation Uncertainty:Evidence from the G7 Economies

The Friedman-Ball hypothesis implies a link between the inflation rate and inflation uncertainty. In this paper we employ a new test for the joint null hypothesis of no dependence effects and no asymmetry in the G7 inflation volatility. The results show that higher inflationrates operate additively via the conditional variance of inflation to induce greater inflation uncertainty in the U.S., U.K. and Canada. In addition, positive inflationary shocks are found to generate greater inflation uncertainty than negative shocks of a similar magnitude in the U.K. and Canada.Friedman-Ball hypothesis, Asymmetry, Davies’ Problem

TIME VARIATION AND ASYMMETRY IN THE WORLD PRICE OF COVARIANCE RISK: THE IMPLICATIONS FOR INTERNATIONAL DIVERSIFICATION

The International Capital Asset Pricing Model measures country risk in terms of the conditional covariance of national returns with the world return. Using impulse responses from a multivariate nonlinear model we provide evidence of time variation and asymmetry in the measure of country risk. and the implied benefit to international diversification. The evidence implies that the price of risk and the benefits from diversification may differ in a statistically and economically meaningful fashion across bull and bear markets.Generalised Impulse Responses; Asymmetry; International Capital Asset Pricing Model.

Equity Return and Short-Term Interest Rate Volatility : Level Effects and Asymmetric Dynamics

Evidence suggests that short-term interest rate volatility peaks with the level of short rates, while equity volatility responds asymmetrically to positive and negative shocks. We present an LM based test that distinguishes between level effects and asymmetry in volatility which is robust to the presence of unidentified nuisance parameters under the null. There is strong evidence of a level effect and asymmetric response in the relationship between S&P 500 Index returns and 3-month US Treasury Bills. The conditional covariance depends on the level of the short rate which has implications for hedging equity returns against short term interest rate movements.Level Effects; Asymmetry; LM Tests; Davies Problem; Nonlinear Granger Causality

Do Stock Market Returns Predict Changes to Output? Evidence from a Nonlinear Panel Data Model

Recent empirical work suggests a predictive relationship between stock returns and output growth. We employ quarterly data from a panel of 27 countries to test whether stock returns as useful in predicting growth. Unlike previous research, our approach allows for the possible non-linear effect of recessions on the growth-return relationship. There is strong evidence to suggest that a linear model would be misspecified and provide potentially misleading inference. Using a switching regression approach, we find evidence that returns are most useful in predicting growth when the economy is in recession.Panel data, current depth of recession, stock returns

Non-linear Co-Movements in Output Growth: Evidence from the United States and Australia

This paper investigates comovements between the United States and Australia. Our nonlinear model allows the dynamic response to shocks to differ if countries are in recession. Generalised Impulse Response Functions highlight a significant asymmetric response to positive and negative shocks.Current Depth of Recession Models, Generalised Impulse Response Functions, Asymmetries

The Asymmetric Effects of Uncertainty on Inflation and Output Growth

We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post-war U.S. data. Our results suggest that growth uncertainty is associated with higher average growth and lower average inflation. Inflation uncertainty is significantly negatively correlated with both output growth and average inflation. Both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude.growth, inflation, uncertainty, asymmetry, generalised impluse response functions