Australian Economic Review

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 0004-9018

Issue Number

Latest documents

Measuring Uncertainty and Its Impact on a Small Open Economy
We study the effect of uncertainty in New Zealand, a small open economy, by considering global and New Zealand‐specific uncertainty proxies, including several US‐ and global‐centric measures and two novel New Zealand‐specific uncertainty proxies constructed using surveys of New Zealand firms and professional forecasters. We study the effect of uncertainty on a set of New Zealand macroeconomic variables. While all of the uncertainty proxies contain valuable information to understand macroeconomic fluctuations in New Zealand, a simple SVAR analysis suggests that global uncertainty is more important than domestic uncertainty in driving the New Zealand business cycle. The implications of uncertainty for monetary policy largely depend on how heightened uncertainty interacts with monetary policy objectives.
Choosing the Social Discount Rate for Australia
This article argues that in cost–benefit analysis government should adopt the opportunity cost of capital as represented by the alternative project rate of return as the social discount rate rather than the private or social time discount rate or a weighted cost of funds rate that reflects estimated proportions of investment and consumption foregone. The appropriate metric for the alternative project rate of return is average market return allowing for non‐diversifiable risk but not for diversifiable project risk. The article concludes that the appropriate social discount rate for Australia, for all sectors and states and territories, is approximately 6.5 per cent.
Towards Understanding Macrofinancial Impacts of Loan‐to‐Value Ratio Policy in New Zealand: A General Equilibrium Perspective
We use a dynamic stochastic general equilibrium model as a framework for thinking about the transmission mechanism of loan‐to‐value macroprudential policy. We analyse the key channels through which the caps on loan‐to‐value ratios work to limit the speed of asset and credit cycles. We further analyse the mechanisms through which the caps support financial system resilience during asset price downturns that are of sufficient magnitude to cause financial and macroeconomic instability.
Issue Information
Macroeconomic Policies in a Low Interest Rate Environment: Back to Keynes?
This article discusses macroeconomic policies in a low interest rate environment, the central theme of the 2017 edition of the Melbourne Institute Macroeconomic Policy Meeting. After reviewing possible causes of the decline in interest rates observed since the 1990s, we present and discuss some of the challenges that monetary and fiscal policy face in a ‘new normal’ environment characterised by a real natural interest rate close to zero. Proposals by leading researchers on how to operate in such an environment are presented and discussed. We conclude by outlining some research questions that are highly relevant from a policy perspective.
Public Sector Discount Rates: A Comparison of Alternative Approaches
This article describes alternative approaches to the public sector discount rate and explains the assumptions involved. Time‐varying rates are also considered. The social opportunity cost of capital (SOC) is the rate of return that could be earned on the ‘next best alternative’. The social rate of time preference (SRTP) is the rate of return required in order to divert resources to a public investment. Only in an ‘ideal’ market are these two rates brought into alignment in equilibrium. Essentially the discount rate reflects how the government values the future when making decisions on behalf of society: value judgements are unavoidable.
The Australian Economy in 2017–2018: The Importance of Stronger Non‐Mining Business Investment Growth
Income Inequality in New Zealand, 1935–2014
Trends in income inequality are increasingly being discussed by economists and policy makers. In New Zealand, income inequality indices increased during the late 1980s and early 1990s, with limited change thereafter. But little is known about the levels and changes of such indices over prior decades. Based on previously unexplored data from Statistics New Zealand Official Yearbooks and Inland Revenue, this article reports estimates for the Gini index of income inequality for New Zealand from the mid‐1930s to the present. Comparisons with estimates for Australia for 1942–2001 reveal some remarkable commonalities.
Grattan Institute's Case for Sugar Tax Is Not Proven
Duckett, Swerissen and Wiltshire () advocated a 40‐cent tax per 100g of sugar in sugar‐sweetened beverages (SSB), because the tax would reduce the cost burden on the non‐obese. Duckett, Swerissen and Wiltshire took these ‘third‐party’ costs as indices of market failure. However, their distributional analysis is not an appropriate framework for the assessment of economic efficiency. Moreover, they did not quantify the causal mechanisms through which a small weight loss would appreciably lower health costs and increase employment of the obese. There may be an economic case for such a tax, but Duckett, Swerissen and Wiltshire have not made it.
Firm‐Level Analysis Using the ABS’ Business Longitudinal Analysis Data Environment (BLADE)
The Australian Bureau of Statistics’ (ABS) Business Longitudinal Analysis Data Environment (BLADE) is the most comprehensive firm‐level statistical asset in Australia. This short overview provides readers a window into what data sources are used, how they are integrated, current and future applications and how these can contribute to evidence‐based policy making in Australia. At present, direct access is limited to staff directly employed by the Australian Statistician or through secondment.