An Estimated, New Keynesian Policy Model for Australia

A two-block open economy model is estimated in this paper using Australian and U.S. data. Evaluation of the estimated model is carried out in relation to a simple closed economy alternative. Namely, we inspect the implied transmission mechanisms, and examine the relative out-of-sample forecasting performance of the closed and open economy models.DSGE Model, Open Economy, Australia, U.S., Bayesian Estimation.