A small New Keynesian state space model of the Australian economy

Using a small New Keynesian state space macroeconomic model, we apply maximum likelihood estimation and the Kalman filter to obtain joint estimates of the unobservable medium-run paths of potential output and its normal rate of growth, the NAIRU, the neutral real interest rate and the subjective dis...

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Bibliographic Details
Published in:Economic modelling 2011, Vol.28 (1), p.672-684
Main Authors: Leu, Shawn Chen-Yu, Sheen, Jeffrey
Format: Article
Language:English
Subjects:
Applied general equilibrium models
Australia
Business cycles
Economic activity
Economic conditions
Economic crisis
Financial crisis
Gross domestic product
Inflation
Kalman filter
Keynesian theory
Macroeconomics
Maximum likelihood method
NAIRU
Natural rates
Natural rates New Keynesian Kalman filter State space model Unobserved components
New Keynesian
Output rate
State space model
Studies
Unemployment
Unobserved components
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Summary:Using a small New Keynesian state space macroeconomic model, we apply maximum likelihood estimation and the Kalman filter to obtain joint estimates of the unobservable medium-run paths of potential output and its normal rate of growth, the NAIRU, the neutral real interest rate and the subjective discount factor for Australia from 1984Q1 to 2006Q4. Using the estimated model we obtain dynamic forecasts for output, unemployment, and inflation to compare with the actual data from 2007Q1 to 2008Q4. Combining the estimated model with a monetary policy rule, we examine impulse responses of inflation and the output and unemployment gaps to shocks associated with the global financial crisis of 2008.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2010.05.017