Working paper

Understanding a Small Open Economy Business Conditions Index

30 Apr 2014
DOI

http://doi.org/10.4225/50/583d4955f1b98
Description

We estimate an unobservable domestic business conditions index for Australia using a variety of observable macroeconomic and nancial variables, relating it to an unobservable external index involving external variables relevant to Australia. Our small open economy, dynamic factor model uses stock and ow variables arriving at mixed frequencies. We nd important links between the domestic and external indices, consistent with the small open economy assumption. A business condence measure and the terms of trade play signicant roles for the indices, making them leading indicators. Financial variables matter only in severe macroeconomic episodes.

Publication Details
Identifiers: 
DOI: 
10.4225/50/583d4955f1b98
Published year only: 
2014
6
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