In this seminar Jamie Cross will provide an overview of his recent paper, The Contribution of International Shocks in a Small Open Economy.

The objective of this paper presented by Jamie is to quantify the extent to which intertemporal international shocks contribute toward business cycle fluctuations in a small open economy, taken to be Australia. The foreign countries of interest are Australia’s five largest trading partners namely: China, The United States of America, the European Union, Japan and the Republic of Korea. The methodology employs a novel modeling feature which allows for fat-tailed time varying shocks in a panel VAR which allows for time varying country and variable specific dynamics as well as cross-country interdependencies. The results found by Jamie show that whilst Student-t specified models provide better in-sample fit as compared to traditional a Gaussian counterpart, allowing for time varying shocks reveals that otherwise determined outliers are actually significant structural instabilities within global business cycles. Economically, Jamie found particularly strong evidence of a world business cycle amongst the large countries in and around the 2007/08 financial crisis; however distinct business cycles emerge for small economies. This result found by the author is robust to the inclusion of both Canada and New Zealand in the group of small open economies. As for Australia specifically the author shows various interesting shifts among international macroeconomic relationships over time. A crude summary of the results is that international shocks contribute to an average of approximately half of domestic business cycle fluctuations over the sample period.

Jamie Cross is a PhD student in the Research School of Economics of ANU. His thesis investigates the prevalence of time variation within the Australian economy. He has recently published one paper in Economic Modelling.

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.