2018 ARC Discovery Project

Large dynamic time-varying models for structural macroeconomic inference
Rodney Strachan, Joshua Chan and Eric Eisenstat
Funded by The Australian Research Council, $179,472, 2018-2020

Summary of Proposal

Economies are large, complex and evolving so economic models need to be also. This project will 1) broaden the range of models that can be used for macroeconomic analysis to include models that are more realistic but difficult to compute. 2) Efficient computational methods will therefore be developed for these models. This innovative approach will then be applied to two applications at the forefront of current macroeconomic research (effects of noisy productivity signals on business cycles; effects of fiscal policy shocks). The project outputs will be broadly applicable to both policymakers and applied macroeconomists and should provide widespread and significant benefits by improving policy and boosting Australia’s comparative advantage.

Impact Statement

Flexible macroeconometric models underpin accurate inference by economists and policymakers. Existing descriptive time-series models used by applied macroeconomists are deficient in a number of important ways that potentially yield misleading inference and poor policy decisions. The methodology proposed here overcomes these limitations, greatly enhancing empirical tools available to drive economic growth and advice on wider policy issues for broad benefits to all Australians.