Regime-shifts and post-float inflation dynamics of Australia

Karunaratne, Neil Dias and Bhar, Ramprasad (2011) Regime-shifts and post-float inflation dynamics of Australia. Economic Modelling, 28 4: 1941-1949. doi:10.1016/j.econmod.2011.03.021


Author Karunaratne, Neil Dias
Bhar, Ramprasad
Title Regime-shifts and post-float inflation dynamics of Australia
Journal name Economic Modelling   Check publisher's open access policy
ISSN 0264-9993
1873-6122
Publication date 2011-01-01
Year available 2011
Sub-type Article (original research)
DOI 10.1016/j.econmod.2011.03.021
Open Access Status Not Open Access
Volume 28
Issue 4
Start page 1941
End page 1949
Total pages 9
Place of publication Amsterdam, The Netherlands
Publisher Elsevier BV * North-Holland
Language eng
Subject 2002 Cultural Studies
Abstract Australia's inflation rate and inflation uncertainty during the post-float era 1983Q3-2006Q4 have acted as important barometers of Australia's macroeconomic performance. The conceptualization and measurement of the nexus between inflation and inflation uncertainty is subject to complex dynamics. We use the Markov regime switching heteroscedasticity (MRSH) model to capture long-run stochastic trend and short-run noisy components. This allows us to conclude that in post-float Australia the results deviate significantly from the mainstream Friedman paradigm on inflation and its uncertainty. We also critically review the plausibility of rival paradigms e.g. Keynesian-Mundell-Fleming, Friedman-Ball, Cukierman-Meltzer and Holland, explaining this paradoxical behavior. The analyses presented here provide valuable insights to policymakers grappling with the challenge of designing monetary policy to combat the adverse effects of inflation and inflation uncertainty for Australia emerging out of the global financial crisis.
Keyword Friedman paradigm
Inflation uncertainty
Intertemporal optimization
Keynesian Mundell Fleming model
Markov Regime Switching Heteroscedasticity (MRSH)
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
 
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