OUTPUT COMPOSITION OF THE

MONETARY POLICY TRANSMISSION

MECHANISM: Is Australia Different?

by Tuan Phan

Discussant: Truong Nguyen

04/11/2013

1. Contribution

- The paper has clear research question: analyses the impact of monetary policy to output through two channels: investment and consumption.

- VAR was used effectively to conclude that investment is more important in Australia

- First research of this type for Australia

- Contribute to the literature of output decomposition began by Angeloni (2004) and Ippei (2004)

- Useful tool for policy makers: more focus on necessary fields

- Housing Investment plays important role.

2. Research Method

- Clear methodology:

• Use different VAR models to analyses output composition

• Identified VAR based on ordering and theoretical models

• Compare results among VAR models to consolidate empirical results

• Simulation to provide confidence interval

3. Some comments:

• Why have to use four VAR models?

- Should provide comparison among four VAR model, advantages and disadvantages of each VAR model.

- Advantages and disadvantages of using four VARs? Some conflicts in Figure 1: other GDPs, CPI)

Christiano et al.

(2005)

C, I, other GDP components, CPI, real Wage,

Productivity, policy rate, Profit/GDP, M growth, Share

Price

Erceg and Levin

(2002-06)

C, I, other GDP components, CPI, Commodity Price,

policy rate

Gordon and Leeper

(1994)

C, I, other GDP components, CPI, Commodity Price,

policy rate, bond yields, M growth

Peersman and Smets

(2003)

C, I, other GDP components, CPI, M growth, policy rate,

real effective exchange rate

Three Exogenous variables: US FED fund rate, US GDP,

US prices.

Thank you