Industrial Impact of Commodity Price Shocks in Australia

Knop, Stephen J and Vespignani, Joaquin L. (2014): Industrial Impact of Commodity Price Shocks in Australia.

Abstract

Commodity price shocks largely affect the mining, construction and manufacturing industries in Australia. However, the financial and insurance sector is found to be relatively unaffected. Mining industry profits and nominal output substantially increase in response to commodity price shocks. Construction output is also found to increase significantly, especially in response to a bulk commodities shock, as a result of increased demand for resource-related construction. Increased demand for construction has a positive spillover effect to parts of the manufacturing industry that supply the construction sector with intermediate inputs, such as the non-metallic mineral sub-industry. In contrast, other manufacturing sub-industries with only tenuous links to the resources sector such as textiles, clothing and other manufacturing, are relatively unresponsive to commodity price shocks

• Item Type: MPRA Paper
• Language: English
• Keywords: Commodity prices, Commodity Shocks, Australian economy
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Berkelmans, L 2005, 'Credit and Monetary Policy: an Australian SVAR', Reserve Bank of Australia, Research Discussion Paper, No. 2005-6.

Bishop, J, Kent, C, Plumb, M & Rayner, V 2013, 'The Resources Boom and The Australian Economy: A Sectoral Analysis', RBA Bulletin, March, pp. 39-49.

Brischetto, A & Voss, G 1999, 'A Structural Vector Autoregressive Model of Monetary Policy in Australia', Reserve Bank of Australia, Research Discussion Paper, 1999-11.

Claus, E, Dungey, M & Fry, R 2008, 'Monetary Policy in Illiquid Markets: Options for a Small Open Economy' Open Economies Review 19, 305-336.

Dungey, M, Fry-Mckibbin, R & Linehan, V 2014, 'Chinese resource demand and the natural resource supplier', Applied Economics, 46, 167-178.

Dungey, M & Pagan, A 2000, 'A structural VAR model of the Australian economy', The Economic Record 76, 321-42.

Dungey, M & Pagan, A 2009, 'Extending a SVAR model of the Australian economy',The Economic Record 85, 1-20.

Dwyer, A, Gardner, G & Williams, T 2011, 'Global Commodity Markets - Price Volatility and Financialisation', RBA Bulletin, June, pp. 49-57.

Fukunaga, I, Hirakata, N & Sudo, N 2010, 'The Effects of Oil Price Changes on the Industry-level Production and Prices in the U.S. and Japan', NBER Working Paper 15791, National Bureau of Economic Research, Cambridge, MA.

Garton, P 2008, 'The resources boom and the two-speed economy', Australian Treasury, Economic Round-up 3, 17-29.

25 Note that according to the Mundell and Fleming model with perfect capital mobility, a flexible exchange rate regime implies that monetary policy is effective while fiscal policy is ineffective in terms of stabilising the economy.

Guidi, F 2010 'The Economic Effects of Oil Price Shocks on the UK Manufacturing and Services Sectors', The !UP Journal of Applied Economics 9, 5-34.

Jääskelä, J & Smith, P 2011, 'Terms of Trade Shocks: What are They and What Do They Do?', Reserve Bank of Australia, Research Discussion Paper 2011-05.

Jacobs, D & Rayner, V 2012, 'The Role of Credit Supply in the Australian Economy', Reserve Bank of Australia, Research Discussion Paper 2012-02.

Jiménez-Rodríguez, R 2008, 'The Impact of Oil Price Shocks: Evidence from the Industries of Six OECD Countries' Energy Economics 30, 3095-3108.

Kearns, J & Lowe, P 2011, 'Australia's Prosperous 2000s: Housing and the Mining Boom', Reserve Bank of Australia, Research Discussion Paper No 2011-07.

Lawson, J & Rees, D 2008, 'A Sectoral Model of the Australian Economy', Reserve Bank of Australia, Research Discussion Paper No 2008-01.

Lee, K & Ni, S 2002, 'On the dynamic effects of oil price shocks: a study using industry level data', Journal of Monetary Economics 49, 823-852.

Lim, G, Chua, C & Nguyen, V 2013, 'Review of the Australian Economy 2012-13: A Tale of Two Relativities', The Australian Economic Review 46, 1-13.

Mitchell, W & Bill, A 2006, 'The Two-Speed Australian Economy- the Decline of Sydney's Labour Market', People and place 14, 14-24.

Rayner, V & Bishop, J 2013, 'Industry Dimensions of the Resource Boom: An Input- Output Analysis', Reserve Bank of Australia, Research Discussion Paper No 2013-02.

Topp, V, Soames, L, Parham, D & Bloch, H 2008, 'Productivity in the Mining Industry: Measurement and Interpretation', Productivity Commission Staff Working Paper, December 2008.

Vespignani, J 2013, 'The Industrial Impact of Monetary Shocks During the Inflation- Targeting Era in Australia', Australian Economic History Review 53, 47-71.

Vespignani, J 2015, 'On the differential impact of monetary policy across states/ territories and its determinants in Australia: Evidence and new methodology from a small open economy,' Journal of International Financial Markets, Institutions and Money 34 1-13.