TY - JOUR
T1 - An investigation of the behaviour of Australia's business cycle
AU - Narayan, Paresh Kumar
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/7
Y1 - 2008/7
N2 - In this paper we examine the relative importance of permanent and transitory shocks in explaining variations in income, consumption and investment at business cycle horizons for Australia. We use the common trend-common cycle restrictions to estimate a variance decomposition of shocks, and find that over short horizons the bulk of the variations in income and investment are due to permanent shocks, while transitory shocks explain the bulk of the variations in consumption. The former finding is consistent with real business cycle models which attribute business cycles to aggregate supply shocks, while the findings for consumption are consistent with the Keynesian view, which attributes business cycles to aggregate demand shocks.
AB - In this paper we examine the relative importance of permanent and transitory shocks in explaining variations in income, consumption and investment at business cycle horizons for Australia. We use the common trend-common cycle restrictions to estimate a variance decomposition of shocks, and find that over short horizons the bulk of the variations in income and investment are due to permanent shocks, while transitory shocks explain the bulk of the variations in consumption. The former finding is consistent with real business cycle models which attribute business cycles to aggregate supply shocks, while the findings for consumption are consistent with the Keynesian view, which attributes business cycles to aggregate demand shocks.
KW - Business cycles
KW - Permanent and transitory shocks
UR - http://www.scopus.com/inward/record.url?scp=43849100297&partnerID=8YFLogxK
U2 - 10.1016/j.econmod.2007.10.012
DO - 10.1016/j.econmod.2007.10.012
M3 - Article
AN - SCOPUS:43849100297
SN - 0264-9993
VL - 25
SP - 676
EP - 683
JO - Economic Modelling
JF - Economic Modelling
IS - 4
ER -