Economic indicators inform the assessment of economic slack for central banks, yet traditional output gap estimates are often limited by the substantial reporting lags of quarterly GDP. This paper extends a mixed‐frequency Bayesian vector autoregressive (MF‐BVAR) framework to the Australian economy by applying a multivariate Beveridge–Nelson (BN) decomposition. Compared to existing applications to the US economy, the modelling setup introduces three distinct contributions: the incorporation of a block‐exogenous foreign sector, explicit accounting for COVID‐19 outliers and the integration of a weekly indicator in addition to monthly and quarterly indicators. I find that the estimated output gap is broadly consistent with central bank estimates. Informational decomposition results reveal that every variable in the model contributes non‐negligibly to the overall estimate, with foreign variables and the Trade Weighted Index (TWI) providing substantial shares of useful information. Domestically, aggregate hours worked provide a more significant contribution than the headline unemployment rate, suggesting more relevance of the intensive margin of the Australian labour market than its extensive margin. Furthermore, sectoral aggregation highlights the labour sector as the primary source of information for the output gap, while TWI alone provides informational value nearly equivalent to the entire financial or macroeconomic sectors combined. Shock decompositions reveal that while domestic shocks drive the majority of cyclical fluctuations on average, the Global Financial Crisis was largely attributable to foreign shocks. Finally, while weekly TWI allows for more timely updates, it does not improve estimates compared to a model utilising a monthly TWI instead.
We highlight the importance of high and low states of household indebtedness for the transmission of monetary policy in Australia over the period 1994Q1–2019Q3. Working with a state‐dependent local projection model, we find that the dynamic effects of monetary policy shocks depend on household‐debt conditions: In the low debt state, output, investment, house prices and the household debt‐to‐GDP ratio strongly react to monetary policy shocks, while the responses of these variables are muted in the high‐debt state. Simulations from a stylised theoretical model show that high indebtedness triggers binding collateral constraints that shut off the home equity loan channel, thereby attenuating the consumption response to an interest rate shock. Our results suggest that (i) the home equity channel is active when household debt is moderate, but inactive when debt is high and (ii) this channel played a key role in the transmission of monetary policy in Australia over the sample period, potentially accounting for the diminished effectiveness of monetary policy under high household debt conditions.
Job mobility - the rate at which workers change employers - is seen as an indicator of economic dynamism, tied to wage growth and productivity. 'Official' figures suggest job mobility has fallen by around 50 per cent over 50 years in Australia. This has generated much interest, but the drivers are not well understood. We begin by showing that official figures overstate job mobility in early years. The actual decline is smaller and is concentrated in the post-GFC era. Next, we show that demographic change explains all of the pre-GFC decline in job mobility, but almost none of the post-GFC decline. The post-GFC decline seems to be driven by reduced opportunities for younger workers, combined with a strong increase in post-COVID job satisfaction.
We examine the evolution of earnings inequality, risk and mobility in Australia from 1991 to 2020 using a 10 per cent sample of administrative tax records from the ALife dataset. Our main findings are summarised as follows. First, earnings inequality follows a distinctive trajectory: top-end inequality increased during the 1990s and 2000s but declined in the 2010s, diverging from the rising trends documented for several other advanced economies. Second, earnings dynamics differ sharply by gender. Within-group inequality compressed among women-driven by sustained gains at the lower end of the distribution-while inequality expanded among men, particularly reflecting weaker growth among low earnings quantiles. Third, cohort-level evidence indicates a shift in the sources of lifetime inequality, with early career disparities accounting for a larger share of within-cohort dispersion among younger cohorts. We further show that earnings risk is asymmetric and cyclical, with higher downside volatility for women and during economic slowdowns, while intragenerational mobility remains high by international standards. Finally, taxes and transfers substantially reduce inequality and income instability at the bottom of the distribution. These findings provide new evidence on the evolution of earnings dynamics in a sustained growth economy with strong fiscal redistribution.
Internal conflict has affected most developing countries over the past several decades. Economic shocks are among the primary drivers of civil conflict. However, the empirical evidence on the impact of price shocks on the risk of conflict is mixed. This paper documents an important channel through which culture may affect conflict in the wake of economic shocks: trust. We use price shocks to extractive commodities as an exogenous variation in the country's economic outlook. We examine a panel of developing countries over 67 years to study whether trust moderates the effect of economic shocks on conflict and use a Difference-in-Differences strategy with country and year fixed effects to estimate the moderating impact of generalised trust. We find that these price shocks are less likely to result in the onset of civil war and conflict in countries with higher trust levels. A one standard deviation increase in the extractive commodity price shock leads to a 30 per cent difference in the probability of the onset of civil conflict between two countries with generalised trust levels one standard deviation apart. We also find that trust does not moderate the effect of price shocks on the cessation of conflict. Our study provides new empirical evidence on the interdependence of economic shocks and culture on conflict.
We study the effects of heat and high temperature shocks on inflation in Australia using monthly, state-level temperature anomaly data via two stages. In the first stage, we decompose temperature anomalies into orthogonal components using a structural vector autoregression with long-run restrictions. We justify the decomposition by establishing its equivalence to a spectral projection operator from a linearised singularly perturbed system, formally linking the decomposition to timescale separation in climate science. In the second stage, we estimate the dynamic effects of these shocks on inflation using smooth local projections. We find that both types of temperature shocks significantly influence inflation, with heterogeneous effects across categories, states and seasons, highlighting the macroeconomic importance of distinct modes of climate variability.
We investigate the impact of the early release of Australian pension savings during the COVID-19 pandemic on short- and medium-term labour supply behaviour. Given the endogenous nature of this policy, we also apply an instrumental variable strategy to isolate the causal effect of the policy on employment and weekly hours worked. Our findings show the pension release scheme led to a sizeable and negative extensive margin response to labour supply in 2020, before dissipating in 2021. This points to the reduction in labour supply caused by the policy being a brief shock rather than a persistent effect. We find evidence that the effect was primarily concentrated among female withdrawers and those who withdrew the full amount allowable under the policy. Our findings improve our understanding of the labour market impacts of early pension release schemes in a crisis context, and can also inform the design of pension systems more broadly.
This study provides new evidence on the magnitude, heterogeneity and mechanisms of the child penalties in Vietnam. Using Labour Force Survey data (2010-2020) and a pseudo-event study design, we focus on working-age individuals who experienced their first childbirth between ages 20 and 45. Guided by a conceptual framework, we examine the extent to which child penalties are associated with labour supply responses and job reallocation, as opposed to within-job adjustments, and how these patterns are moderated by individual, household and institutional factors. The results show that mothers' earnings decline by approximately 35 per cent at first childbirth, while fathers experience a small, statistically insignificant increase of approximately three per cent. This gap narrows over time, leaving an 18.3 per cent relative decline in mothers' earnings after 10 years. Initial losses reflect immediate employment exits, whereas long-run patterns are consistent with reallocation towards lower-paying and less formal jobs, with little change in hours worked. Penalties are smaller among mothers with only one child and those with greater family and institutional support. Furthermore, education plays a central role, shaping both labour supply and occupational mobility. These findings highlight the importance of policies that support continuous employment and mitigate occupational reallocation to alleviate child penalties in Vietnam.
This study examines the effects of a public subsidy withdrawal on provider behaviour, focusing on General Practitioners (GPs) in Australia. Specifically, it explores changes in GP billing practices following the removal of an item on the Medicare Benefits Schedule that subsidises joint injections (intra-articular steroids). Using a difference-in-differences approach and linked administrative data, the analysis focuses on GPs who continued prescribing intra-articular steroids after the policy change. The findings indicate that GPs maintained their service volumes but adjusted their billing strategies to mitigate potential income losses, without increasing patients' out-of-pocket costs. These results highlight the adaptive responses of healthcare providers to policy-induced financial incentives, offering valuable insights for healthcare policy design and economic sustainability.
