Asymmetric monetary policy and consumer demand responses in Australia

This dissertation comprises three independent but complementary chapters, all of which use advanced time series and panel data econometric techniques to study asymmetries in consumer demand response to price changes, as well as industrial and state/territory responses to monetary shocks in Australia. The first contribution developsan autoregressive distributed lag model using Australian supermarket scanner data.Specifically, we use data from sales of similar products manufactured by thecompetitors Coca-Cola and Pepsi-Cola and find that demand response to price changesis not asymmetric for the market leader Coca-Cola but is strongly asymmetric for itscompetitor Pepsi-Cola. This suggests that consumers of the less expensive good stockup when prices go down but the consumers of the more expensive good do not. Thesecond contribution analyses the industrial impact of monetary shocks in Australia.These impacts are quantified by constructing a structural vector autoregressive (SVAR)model for a small open economy. Our results show that construction and manufacturingindustries exhibit a significant reduction in gross value added (GVAs) after anunanticipated rise in the official cash rate. In the finance and insurance; and miningindustries, however, we find that there is a positive or neutral response to these shocks,.Based on the responses, we constructed a model to quantify which sources are morelikely to be accountable for these different responses. The third contribution develops aSVAR and a structural vector error correction (SVEC) model to explore the impact ofmonetary policy across states and territories in Australia. Our results indicate thatmonetary shocks largely affect economic activity in Western Australia. In smallerproportion, those shocks generate contractions in New South Wales, Victoria and SouthAustralia, while economic activity in Queensland and Tasmania is significantly lessaffected. In terms of state/territory exports response, our results indicate that monetaryshocks contract exports in greater proportion in South Australia and Victoria than inother states and territories. Finally, the determinants of state/territory responses arestudied. Our estimation indicates that the share of services, farm and mining exports isan important determinant of state/territory export responses