Nilss Olekalns

Does the Australian dollar real exchange rate display mean reversion

Non-stationarity of the real exchange rate is inconsistent with purchasing power parity as a long run equilibrium. This paper applies parametric and non-parametric techniques to data from a trade weighted index to analyse the time series properties of Australias real exchange rate. In contrast to recent work by Olekalns amd Wilkins (1998) we conclude that shocks to the real exchange rate are infinitely persistent.

The Effect of Recessions on the Relationship Between Output Variability and Growth

This paper investigates the relationship between output volatility and growth using post-war real GDP data for the United States. We expand on recent research by Beaudry and Koop (1993) documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is contracting. While we find that the economy expands most rapidly following a recession, this expansion is offset by the negative impact of output uncertainty.

Some further Evidence on the Long Run Neutrality of Money

Abstract A recently developed reduced-form test for long-run neutrality is applied to twentieth-century Australian data on real output and the nominal money stock. The results show that narrowly defined money is neutral. However, real output is not invariant in the long run to a broader-based measure of the money stock.

Measuring the response of macroeconomic uncertainty to shocks

Recent research documents the importance of uncertainty in determining macroeconomic outcomes, but little is known about the transmission of uncertainty across such outcomes. This paper examines the response of uncertainty about inflation and output growth to shocks documenting statistically significant size and sign bias and spillover effects. Uncertainty about inflation is a determinant of output uncertainty, whereas higher growth volatility tends to raise inflation volatility. Both inflation and growth volatility respond asymmetrically to positive and negative shocks. Negative growth and inflation shocks lead to higher and more persistent uncertainty than shocks of equal magnitude but opposite sign.

Inflation, Unemployment and the NAIRU in Australia

In this paper we investigate the relationship between inflation and unemployment in Australia, post 1959. We focus on two features of the data: firstly, we find that forecasting models are surprisingly stable through our sample period. We also estimate the nonaccelerating inflation rate of unemployment (NAIRU), focussing on both the level of the NAIRU, and the stability and precision of our estimates.

Social comparisons and reference group formation: Some experimental evidence

We investigate reference group formation and the impact of social comparisons on ultimatum bargaining using a laboratory experiment. Three individuals compete in a real-e¤ort task for the role of the proposer in a three-player ultimatum game. The role of the responder is randomly allocated. The third individual receives a ?fixed payment - our treatment variable - and makes no decision. The existence of a non-responder has a dramatic e¤ect on bargaining outcomes. In the most extreme treatment, more than half of the o¤ers are rejected. Behavior shows individuals exhibit self-serving bias in the way they de?ne their reference groups.(This abstract was borrowed from another version of this item.)

Deviations from uncovered interest parity in Malaysia

This paper applies the Switching ARCH (SWARCH) model of Hamilton and Susmel (1994) to investigate the dynamics of deviations from Uncovered Interest Parity (UIP) for Malaysia for the sample period 1978–2002. In particular, the deviations (or the risk premium) are modelled as a time series subject to discrete regime shifts between two possible states, “high volatility” and “low volatility”. We find that the SWARCH model provides a better description of the data and implies a much lower degree of volatility persistence than conventional ARCH models. Overall, the SWARCH model provides a clearer picture of how the UIP deviations have evolved over time and how the changes in the volatility of the deviations have coincided with major changes in financial liberalisation in Malaysia. This adds credibility to the hypothesis that the shifts are not statistical artefacts but indeed reflect real economic changes.

Exchange Rate Instability: A Threshold Autoregressive Approach

We fit a two-regime threshold autoregressive model to a trade weighted index of the Australian real exchange rate. We find strong evidence of a threshold in the real exchange rate, with the data being classified into two regimes. The timing of the first regime is consistent with events that would be expected to have led to pressure on the Australian exchange rate. However, there is no evidence to suggest that the Asian economic crisis led to the real exchange rate entering this regime. Copyright 2001 by The Economic Society of Australia.

Enriching the Learning Experience: A CALM Approach

The article outlines and evaluates a new learning strategy implemented in the Faculty of Economics and Commerce at the University of Melbourne. The strategy is an internet-based assignment delivery and assessment system designed to (i) equip students to make the link between macro economic theory and important real-world issues, (ii) develop positive attitudes to the subject, (iii) develop deep approaches to learning, (iv) develop a facility for critical analysis and problem-solving, and (v) develop effective study habits. Using a multidimensional evaluation strategy, the indications are that the new approach has succeeded in its aims.

Tax smoothing, tax tilting and fiscal sustainability in Pakistan

Abstract Pakistan has a long history of running fiscal deficits. There are two broad considerations motivating a government to run a deficit — tax smoothing and tax tilting. Tax-smoothing behavior results in fiscal deficits because in the presence of non-lump-sum taxes, optimizing governments seek to minimize the distortionary effects of taxation by keeping tax rates smooth over time, rather than varying contemporaneously with expenditure. Even if we assume that expenditures will remain constant over time, obviating the need for tax smoothing, fiscal deficits may arise due to tax-tilting behavior if the governments discount rate differs from the effective interest rate, as then there is an incentive to shift (tilt) taxation across time. This paper tests a version of Barros tax-smoothing model, using Pakistan data for the period 1956–1995. The empirical results indicate that Pakistans fiscal behavior is consistent with tax smoothing, as taxes remained relatively constant in response to anticipated changes in expenditure, most likely due to the governments inability to raise revenue. In addition, its fiscal behavior has been dominated by the stagnation of revenues, large tax-tilting-induced deficits, and the consequent accumulation of excessive public liabilities. An analysis of the time-series characteristics of tax-tilting behavior indicates that the stock of public liabilities is unsustainable under unchanged fiscal policies.