Australian Economic Growth: Non-linearities and International Influences

An early version of this paper titled"International influences on the Australian Business Cycle: Evidence from Linear and Non-linear Models" was presented at the 1999 conometric Society Meeting at the University of Technology, Sydney and Forecasting and Business Cycle Analysis: Frontier Techniques, Melbourne Business School. We are grateful to Gary Koop and Simon Potter for sharing their GAUSS routines. Comments from Adrian Pagan, Christopher Sims, Don Harding, Mark Crosby and Nilss Olekalns assisted the development of the paper. The usual disclaimer applies to any errors or omissions. Financial support was provided by the Australian Research Council under grant C799This paper considers the extent to which fluctuations in Australian economic growth are affected by domestic and overseas economic performance. We investigate the performance of a range of non-linear models versus linear models, comparing the models using Bayes factors and posterior odds ratios. The posterior odds ratios favour non-linear specifications in which luctuations in economic activity in the US affect Australia's economic performance. Our results suggest that an exogenous negative shock will be more persistent, lead to greater output volatility, and have a greater impact on growth, than a positive shock of equal magnitude