This seminar compares the macroeconomic effects of global oil and iron ore price shocks on the Australian economy. Using a Bayesian structural VAR model with sign restrictions, Bao Nguyen identifies three types of shock: supply, demand and specific demand. The main results found by the author suggest that, over the period 1990Q1 to 2014Q4, the oil shock has a relative larger impact than that the iron ore shock on output and inflation while the iron ore shock is the dominant source of interest and exchange rate movements. The effects crucially depend on the underlying sources of oil or iron ore price shifts. For example, real GDP responds negatively to the rise of oil prices driven by supply disruptions but positively to a similar shock on the iron ore market. Higher global demand for these commodities has a positive impact on the economy but the iron ore demand shock is about two times larger. However, a positive oil and iron ore price shock driven by specific demand has a temporary decline in real GDP.

Bao Nguyen is a third year PhD candidate at CAMA of Crawford School. His current research focuses on the macroeconomic impact of commodity price shocks.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.