A Small state-space model of the Australian economy

Shawn Chen-Yu Leu, Jeffrey Sheen

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contributionpeer-review


Using a small state space macroeconomic model, we apply maximum likelihood estimation and the Kalman filter to obtain joint estimates of the unobservable medium-run paths of potential output and its normal rate of growth, the natural rate of unemployment and the natural real interest rate. Our unobserved component analysis indicates that in 2005, the Australian economy was close to potential output, the normal rate of growth was low, unemployment was below the natural rate presaging inflationary pressures, and that the real rate of interest was significantly below its natural rate, suggesting that monetary policy was too expansionary.
Original languageEnglish
Title of host publicationProceedings of the 36th Australian Conference of Economists
Place of PublicationHobart
PublisherEconomic Society of Australia
Number of pages23
ISBN (Print)9780959337013
Publication statusPublished - 2007
Externally publishedYes
EventAustralian Conference of Economists (36th : 2007) - Hobart
Duration: 24 Sep 200726 Sep 2007


ConferenceAustralian Conference of Economists (36th : 2007)


  • natural rates
  • Kalman filter
  • state space model
  • unobserved components

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