Macroeconomic Shocks, Depreciation and Inflation: an Australian Perspective

Karunaratne, Neil Dias (2002) Macroeconomic Shocks, Depreciation and Inflation: an Australian Perspective. Discussion Paper No 298, School of Economics, The University of Queensland.

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Author Karunaratne, Neil Dias
Title Macroeconomic Shocks, Depreciation and Inflation: an Australian Perspective
School, Department or Centre School of Economics
Institution The University of Queensland
Report Number Discussion Paper No 298
Publication date 2002-01-01
Start page 1
End page 25
Total pages 25
Publisher The University of Queensland
Language eng
Subject 340101 Microeconomic Theory
Abstract/Summary The general equilibrium approach demonstrates that macroeconomic shocks link the exchange rate and the inflation rate through diverse transmission channels. Therefore, the one-track focus of the partial equilibrium 'pass-through' approach that predicts that exchange rate depreciation causes inflation is flawed does not explain the exchange rate inflation dynamics of post-float australia. In this paper based on a mundell-fleming stochastic rational expectations model the theoretical priors that link exogenous shocks and macro-variables such variables real exchange rate, relative prices and relative output have been identified. Thereafter, the structural var (svar) methodology has been deployed to the identify the exogenous shocks by appealing to the long-run classical neutrality postulates. The dynamic interactions between shocks and macro-variables have been empirically reviewed using innovation accounting.
Keyword New Classical
Real Business Cycle
Unit Roots
Granger Causality
Non-nested tests
Generated Regressors
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Additional Notes ISSN 1033-4661

Document type: Department Technical Report
Collection: Discussion Papers (School of Economics)
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