The Response of Australian Purchasing Power to Chinese Economic Shocks

Horsburgh, Cameron Stewart (2013). The Response of Australian Purchasing Power to Chinese Economic Shocks Honours Thesis, School of Economics, The University of Queensland.

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Author Horsburgh, Cameron Stewart
Thesis Title The Response of Australian Purchasing Power to Chinese Economic Shocks
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2013-11
Thesis type Honours Thesis
Supervisor Dr. James Laurenceson
Prof. Rodney Strachan
Total pages 163
Language eng
Subjects 14 Economics
Formatted abstract

The impact on the Australian economy of exogenous or policy shocks to China has yet to be quantified, despite increasing public perception of a link and a growing trade relationship between the two countries. An empirical measure of this effect is important for policymakers, as well as others exposed to the Australian economy to develop appropriate responses to such shocks. Although some literature describing Australias business cycle synchronization exists, historically it has focused on shocks emanating from the U.S. and currently the only studies including China use correlation analysis or a DSGE model. Moreover, all previous research is focussed on the effects on Australian output measures, whereas this research measures the effect on a more relevant measure for the open economy, purchasing power. Further, it is likely that this relationship has changed over time, a feature that such time invariant models will not capture.

This thesis will attempt to address this deficiency in the literature. It will examine the response of Australian variables to Chinese demand and money supply shocks and attempt to quantify how these responses have evolved. This will be achieved using a TVP-SVAR model with Bayesian estimation and stochastic volatility in the parameters.

Contrary to popular opinion, the results of this research indicate that despite increasing trade and price linkages between China and Australia, idiosyncratic shocks to the Chinese economy have an insignificant effect on Australian purchasing power and other macroeconomic variables.

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Created: Thu, 19 Dec 2013, 13:00:01 EST by Yu-lin Huang on behalf of School of Economics