Portfolio Shocks and the Dynamics of the Real Economy of Australia (1980-2014): A Structural Vector Autoregressive Model Approach

Mansur, Alfan and Liu, Yichang and Zaman, Kazi Arif Uz (2015): Portfolio Shocks and the Dynamics of the Real Economy of Australia (1980-2014): A Structural Vector Autoregressive Model Approach.

Abstract

This paper analyses domestic and foreign equity shocks under long-run restrictions on the Australian macroeconomy using a five-variable SVAR model. Evidence reveals that aggregate supply shocks produce positive wealth effects coming from increasing real value of Australian equity as the goods prices fall. Moreover, the channels of how Australian portfolio shocks affect the Australian economy are through interest rates and prices in the goods market. Australian portfolio also acts as a channel for wealth effect arising from the foreign equity market. There was some reduction in the Australian households’ wealth following the global financial crises, but shows strong resilience as it quickly rebounded due to the strong aggregate supply shocks. The role of Australian equity to its domestic economy in recent time is getting stronger than in the past since the equity market capitalization has grown enormously in the last decade.

• Item Type: MPRA Paper
• Language: English
• Keywords: equity, shocks, restriction, SVAR
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G10 - General

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