Don Harding | Victoria University (original) (raw)

Papers by Don Harding

Evaluates the forecasting model used by the Institute and applies it to forecasting of employment... more Evaluates the forecasting model used by the Institute and applies it to forecasting of employment in Australia.

Research Papers in Economics, 2010

The key feature of the pit is that they are bounded below by 0 and above by 1. Thus we are guaran... more The key feature of the pit is that they are bounded below by 0 and above by 1. Thus we are guaranteed that all moments of (p1t, ..., pIt) exist for all data-generating processes for the nominal price vector (P1t, ..., PIt), something that is not true of (q1t, ..., qIt). This means that one can use moments to summarise the features of (p1t, ..., pIt), something that we cannot be assured is valid when summarising the features of (q1t, ..., qIt). A second important difference between Definitions (1) and (2) is that the former depends on the choice of numerator while the latter does not. This means that summary statistics built on Definition (1) will depend on the choice of numerator.

This article examines the likely size and nature of the macroeconomic shock(s) delivered to the A... more This article examines the likely size and nature of the macroeconomic shock(s) delivered to the Australian economy by the recent increases in world oil prices. Detail on the oil price rise and its implications for the price paid by consumers is provided.

The ultimate objective of this paper is to discuss the duration of business cycles and the relate... more The ultimate objective of this paper is to discuss the duration of business cycles and the related issue of the probability of recession. To reach that objective it is necessary to first agree on a definition of business cycles. It is also necessary to agree on how to define the key features of business cycles and to agree on the rules for identifying and dating these key features. Although not strictly necessary for this paper, it is also helpful to discuss why we seek to identify and date key features of the business cycles.

This note provides evidence of neglected seasonality in the "seasonally adjusted" Austr... more This note provides evidence of neglected seasonality in the "seasonally adjusted" Australian national accounts

This paper evaluates different policy options to reduce unemployment by using a version of the TR... more This paper evaluates different policy options to reduce unemployment by using a version of the TRYM model. For the purpose of this paper, the TRYM model has been modified in several respects, particularly by combining the private business and government trading enterprise sectors. For the long run, the neoclassical model closure means that the unemployment rate converges to an exogenously set NAIRU rate. For the short and medium run, periods well in excess of ten years, policy simulations show that macroeconomic policy changes, wage changes, labour productivity changes, and NAIRU changes affect employment and unemployment. Further, these policy effects are produced whether the model begins in a disequilibrium situation of unemployment above the NAIRU or at the long run equilibrium growth path with unemployment equal to the NAIRU.

Recent events suggest that the death of the business cycle has been exaggerated; the issue of how... more Recent events suggest that the death of the business cycle has been exaggerated; the issue of how one learns about and monitors the business cycle remains centre stage. Advent of the Euro and the potential for tensions when sovereign nations subsume their monetary policy into a single response also makes monitoring the business cycle of particular interest for Euro area policy makers. In this paper we summarize recent research on three questions relating to cycles in economic activity --- how to extract cyclical information, how to analyse it, and how to enquire into what special difficulties might be encountered when using cyclical indicators. This survey focuses on our own research which we view as a formalization of some of the procedures developed by Burns and Mitchell at the NBER. However, defence of our position goes beyond continuity with the past and is based on the view that the way in which these investigators defined the business cycle is a very natural one that connects ...

This chapter looks at using the binary states describing the recurrent events to help in either c... more This chapter looks at using the binary states describing the recurrent events to help in either constructing economic models of time series or evaluating the fit of such models. The chapter provides a general discussion of the issues that come up when using the binary states in regressions. It then turns to the analysis of complete economic models. In these it is very common to see variance decompositions computed and used to draw conclusions about which shocks are responsible for the recurrent events. It is shown that this methodology is flawed when it comes to shedding light on what causes the business cycle. What can be done is investigated in the chapter, which illustrates how to determine which shocks are important to a matching of the business cycle features discussed in Chapter 5. The discussion moves on to some economic models that have been constructed in the wake of the global financial crisis and which aim to highlight the role of financial shocks.

In this paper I address the following questions. - Has the business cycle become longer and shall... more In this paper I address the following questions. - Has the business cycle become longer and shallower? And why? - How stabilizing is monetary policy. In answering these questions I summarize recent research undertaken by Adrian Pagan and myself that formalizes the procedures developed by Burns and Mitchell at the NBER. Defence of our position goes beyond continuity with the past and is based on the view that the way in which these investigators defined the business cycle is a very natural one that connects with the way policy makers and commentators discuss the cycle. After discussing how to extract cyclical information my attention then turns to describing the features of the Australian business cycle. Here I employ recently constructed data on annual GDP that goes back to 1861. The recurrent pattern of peaks and troughs in this annual data marks out recessions that are somewhat more severe than that seen in quarterly data. I find little evidence that these major contractions are s...

Australia has experienced a varied track record on unemployment. For the third quarter of the 20t... more Australia has experienced a varied track record on unemployment. For the third quarter of the 20th century unemployment averaged 2.0 per cent. This is bracketed by average unemployment rates of 8.6 and 7.4 per cent in the second and fourth quarter centuries. Explanations of this phenomenon vary. In this paper we explore supply side explanations using a model developed by Ljungqvist and Sargent (LS). We adapt the LS model to the Australian tax and welfare system and calibrate it to the Australian economy. Two simulation experiments are considered. In the first we study the effect of varying the unemployment benefit on the level and composition of unemployment. In the second simulation we examine the effects of increasing the degree of turbulence experienced by the economy. In the former simulation we find that: raising benefits causes a rise in the duration of unemployment; unemployment rates rise; across voluntary and involuntary unemployment classes; the rise is relatively larger i...

Macroeconometric and nancial researchers often use secondary or constructed binary random variabl... more Macroeconometric and nancial researchers often use secondary or constructed binary random variables that di er in terms of their statistical properties from the primary random variables used in microeconometric studies. One important di erence between primary and secondary binary variables is that while the former are, in many instances, independently distributed (i.d.) the later are rarely i.d. We show how popular rules for constructing binary states determine the degree and nature of the dependence in those states. When using constructed binary variables as regressands a common mistake is to ignore the dependence by using a probit model. We present an alternative non-parametric method that allows for dependence and apply that method to the issue of using the yield spread to predict recessions.

The fact that the Global Financial Crisis, and the Great Recession it ushered in, was largely unf... more The fact that the Global Financial Crisis, and the Great Recession it ushered in, was largely unforeseen, has led to the common opinion that macroeconomic models and analysis is deficient in some way. Of course it has probably always been true that businessmen, journalists and politicians have agreed on the proposition that economists can't forecast recessions. Yet we see an enormous published literature that presents results which suggest it is possible to do so, either with some new model or some new estimation method e.g. Kaufman (2010), Galvao (2006), Dueker (2005), Wright (2006) and Moneta (2005). Moreover, there seem to be no shortage of papers still emerging that make claims along these lines. So a question that naturally arises is how one is to reconcile the existence of an expanding literature on predicting recessions with the scepticism noted above?

Macroeconometric and financial researchers often use secondary or constructed binary random varia... more Macroeconometric and financial researchers often use secondary or constructed binary random variables that differ in terms of their statistical properties from the primary random variables used in microeconometric studies. One important difference between primary and secondary binary variables is that while the former are, in many instances, independently distributed (i.d.) the later are rarely i.d. We show how popular rules for constructing binary states determine the degree and nature of the dependence in those states. When using constructed binary variables as regressands a common mistake is to ignore the dependence by using a probit model. We present an alternative non-parametric method that allows for dependence and apply that method to the issue of using the yield spread to predict recessions.

The New Palgrave Dictionary of Economics, 2012 Version, 2012

Evaluates the forecasting model used by the Institute and applies it to forecasting of employment... more Evaluates the forecasting model used by the Institute and applies it to forecasting of employment in Australia.

Research Papers in Economics, 2010

The key feature of the pit is that they are bounded below by 0 and above by 1. Thus we are guaran... more The key feature of the pit is that they are bounded below by 0 and above by 1. Thus we are guaranteed that all moments of (p1t, ..., pIt) exist for all data-generating processes for the nominal price vector (P1t, ..., PIt), something that is not true of (q1t, ..., qIt). This means that one can use moments to summarise the features of (p1t, ..., pIt), something that we cannot be assured is valid when summarising the features of (q1t, ..., qIt). A second important difference between Definitions (1) and (2) is that the former depends on the choice of numerator while the latter does not. This means that summary statistics built on Definition (1) will depend on the choice of numerator.

This article examines the likely size and nature of the macroeconomic shock(s) delivered to the A... more This article examines the likely size and nature of the macroeconomic shock(s) delivered to the Australian economy by the recent increases in world oil prices. Detail on the oil price rise and its implications for the price paid by consumers is provided.

The ultimate objective of this paper is to discuss the duration of business cycles and the relate... more The ultimate objective of this paper is to discuss the duration of business cycles and the related issue of the probability of recession. To reach that objective it is necessary to first agree on a definition of business cycles. It is also necessary to agree on how to define the key features of business cycles and to agree on the rules for identifying and dating these key features. Although not strictly necessary for this paper, it is also helpful to discuss why we seek to identify and date key features of the business cycles.

This note provides evidence of neglected seasonality in the "seasonally adjusted" Austr... more This note provides evidence of neglected seasonality in the "seasonally adjusted" Australian national accounts

This paper evaluates different policy options to reduce unemployment by using a version of the TR... more This paper evaluates different policy options to reduce unemployment by using a version of the TRYM model. For the purpose of this paper, the TRYM model has been modified in several respects, particularly by combining the private business and government trading enterprise sectors. For the long run, the neoclassical model closure means that the unemployment rate converges to an exogenously set NAIRU rate. For the short and medium run, periods well in excess of ten years, policy simulations show that macroeconomic policy changes, wage changes, labour productivity changes, and NAIRU changes affect employment and unemployment. Further, these policy effects are produced whether the model begins in a disequilibrium situation of unemployment above the NAIRU or at the long run equilibrium growth path with unemployment equal to the NAIRU.

Recent events suggest that the death of the business cycle has been exaggerated; the issue of how... more Recent events suggest that the death of the business cycle has been exaggerated; the issue of how one learns about and monitors the business cycle remains centre stage. Advent of the Euro and the potential for tensions when sovereign nations subsume their monetary policy into a single response also makes monitoring the business cycle of particular interest for Euro area policy makers. In this paper we summarize recent research on three questions relating to cycles in economic activity --- how to extract cyclical information, how to analyse it, and how to enquire into what special difficulties might be encountered when using cyclical indicators. This survey focuses on our own research which we view as a formalization of some of the procedures developed by Burns and Mitchell at the NBER. However, defence of our position goes beyond continuity with the past and is based on the view that the way in which these investigators defined the business cycle is a very natural one that connects ...

This chapter looks at using the binary states describing the recurrent events to help in either c... more This chapter looks at using the binary states describing the recurrent events to help in either constructing economic models of time series or evaluating the fit of such models. The chapter provides a general discussion of the issues that come up when using the binary states in regressions. It then turns to the analysis of complete economic models. In these it is very common to see variance decompositions computed and used to draw conclusions about which shocks are responsible for the recurrent events. It is shown that this methodology is flawed when it comes to shedding light on what causes the business cycle. What can be done is investigated in the chapter, which illustrates how to determine which shocks are important to a matching of the business cycle features discussed in Chapter 5. The discussion moves on to some economic models that have been constructed in the wake of the global financial crisis and which aim to highlight the role of financial shocks.

In this paper I address the following questions. - Has the business cycle become longer and shall... more In this paper I address the following questions. - Has the business cycle become longer and shallower? And why? - How stabilizing is monetary policy. In answering these questions I summarize recent research undertaken by Adrian Pagan and myself that formalizes the procedures developed by Burns and Mitchell at the NBER. Defence of our position goes beyond continuity with the past and is based on the view that the way in which these investigators defined the business cycle is a very natural one that connects with the way policy makers and commentators discuss the cycle. After discussing how to extract cyclical information my attention then turns to describing the features of the Australian business cycle. Here I employ recently constructed data on annual GDP that goes back to 1861. The recurrent pattern of peaks and troughs in this annual data marks out recessions that are somewhat more severe than that seen in quarterly data. I find little evidence that these major contractions are s...

Australia has experienced a varied track record on unemployment. For the third quarter of the 20t... more Australia has experienced a varied track record on unemployment. For the third quarter of the 20th century unemployment averaged 2.0 per cent. This is bracketed by average unemployment rates of 8.6 and 7.4 per cent in the second and fourth quarter centuries. Explanations of this phenomenon vary. In this paper we explore supply side explanations using a model developed by Ljungqvist and Sargent (LS). We adapt the LS model to the Australian tax and welfare system and calibrate it to the Australian economy. Two simulation experiments are considered. In the first we study the effect of varying the unemployment benefit on the level and composition of unemployment. In the second simulation we examine the effects of increasing the degree of turbulence experienced by the economy. In the former simulation we find that: raising benefits causes a rise in the duration of unemployment; unemployment rates rise; across voluntary and involuntary unemployment classes; the rise is relatively larger i...

Macroeconometric and nancial researchers often use secondary or constructed binary random variabl... more Macroeconometric and nancial researchers often use secondary or constructed binary random variables that di er in terms of their statistical properties from the primary random variables used in microeconometric studies. One important di erence between primary and secondary binary variables is that while the former are, in many instances, independently distributed (i.d.) the later are rarely i.d. We show how popular rules for constructing binary states determine the degree and nature of the dependence in those states. When using constructed binary variables as regressands a common mistake is to ignore the dependence by using a probit model. We present an alternative non-parametric method that allows for dependence and apply that method to the issue of using the yield spread to predict recessions.

The fact that the Global Financial Crisis, and the Great Recession it ushered in, was largely unf... more The fact that the Global Financial Crisis, and the Great Recession it ushered in, was largely unforeseen, has led to the common opinion that macroeconomic models and analysis is deficient in some way. Of course it has probably always been true that businessmen, journalists and politicians have agreed on the proposition that economists can't forecast recessions. Yet we see an enormous published literature that presents results which suggest it is possible to do so, either with some new model or some new estimation method e.g. Kaufman (2010), Galvao (2006), Dueker (2005), Wright (2006) and Moneta (2005). Moreover, there seem to be no shortage of papers still emerging that make claims along these lines. So a question that naturally arises is how one is to reconcile the existence of an expanding literature on predicting recessions with the scepticism noted above?

Macroeconometric and financial researchers often use secondary or constructed binary random varia... more Macroeconometric and financial researchers often use secondary or constructed binary random variables that differ in terms of their statistical properties from the primary random variables used in microeconometric studies. One important difference between primary and secondary binary variables is that while the former are, in many instances, independently distributed (i.d.) the later are rarely i.d. We show how popular rules for constructing binary states determine the degree and nature of the dependence in those states. When using constructed binary variables as regressands a common mistake is to ignore the dependence by using a probit model. We present an alternative non-parametric method that allows for dependence and apply that method to the issue of using the yield spread to predict recessions.

The New Palgrave Dictionary of Economics, 2012 Version, 2012