The early 21st century saw Australia experience its largest and longest terms of trade boom. This paper places this recent boom in a long-run historical context by comparing the current episode with earlier cycles. While similarities exist across most episodes, current macroeconomic policy...

This paper documents the clear change of view, which has taken place in Australia over the past three decades or so, concerning the relevance of the current account deficit for policy. Historical experience under a fixed exchange rate regime suggested that large persistent deficits were...

We use a simple model of a closed economy to study the recommendations of monetary policy-makers attempting to respond optimally to an asset-price bubble whose stochastic properties they understand. We focus on the impact which the zero lower bound (ZLB) on nominal interest rates has on the...

We present a simple model of the macroeconomy that includes a role for an asset-price bubble, and derive optimal monetary policy settings for two policy-makers. The first policy-maker, a sceptic, does not attempt to forecast the future possible paths for the asset-price bubble when setting...

The output gap – the difference between actual and potential output – is widely regarded as a useful guide to future inflationary pressures, as well as an important indicator of the state of the economy in its own right. Since the output gap is unobservable, however, its estimation is prone...

Analysts typically use a variety of techniques to forecast inflation. These include both ‘bottom-up’ approaches, for near-term forecasting, as well as econometric methods (such as mark-up models of inflation, which have been found to perform quite well for Australia – see de Brouwer and...