Sean Langcake

Bio: Sean Langcake is an academic researcher from Reserve Bank of Australia. The author has contributed to research in topics: Bayesian vector autoregression & Small open economy. The author has an hindex of 3, co-authored 4 publications receiving 22 citations.

An Empirical BVAR-DSGE Model of the Australian Economy

Abstract: In this paper, we develop a multi-sector dynamic stochastic general equilibrium (DSGE) model with a simple commodity sector and assess whether forecasts from this model can be improved by using it as a prior for an empirical Bayesian vector autoregression (BVAR). We treat the world economy as being observed and exogenous to the small economy, rather than unobserved, as has been done in some previous studies, such as Hodge, Robinson and Stuart (2008) and Lees, Matheson and Smith (2011). We find that the forecasts from a BVAR that uses this DSGE model as a prior are generally more accurate than those from the DSGE model alone. Nevertheless, these forecasts do not outperform a small open economy VAR estimated using other standard priors or simple univariate benchmarks.

Forecasting the Australian economy with DSGE and BVAR models

Abstract: Reflecting the importance of commodities for the Australian economy, we construct a dynamic stochastic general equilibrium (DSGE) model of the Australian economy with a commodity sector. We assess whether its forecasts can be improved by using it as a prior for an empirical Bayesian vector autoregression (BVAR). We find that the forecasts from the BVAR tend to be more accurate than those from the DSGE model. Nevertheless, for output growth these forecasts do not outperform benchmark models, such as a small open economy BVAR estimated using the standard priors for forecasting. A Bayesian factor augmented vector autoregression produces the most accurate near-term inflation forecasts.

Inflation Persistence and Labour Market Frictions: An Estimated Efficiency Wage Model of the Australian Economy

Abstract: The purpose of this paper is to evaluate whether adding labour market frictions improves the basic New Keynesian model's ability to generate greater inflation persistence and plausible labour market dynamics. This paper builds and compares two sticky price models, one of which is augmented by an efficiency wage model of the labour market. The efficiency wage model is motivated by fair wage considerations, which add a real rigidity to the model that complements nominal price rigidities common to both models. The two models are then extended to capture a series of backward looking behaviours typically used to generate inflation persistence. The key contribution of this paper is that the proposed models are estimated using Bayesian maximum likelihood techniques and Australian data. The results presented show that by adding real wage rigidity, the models' internal propogation and labour market dynamics are significantly improved. The results also demonstrate that the conclusions made elsewhere in the literature using simulated models can be extended to models estimated using Bayesian methods.

Making the Best of the Terms of Trade Boom and Managing the Risks | RDP 2011-07: Australia's Prosperous 2000s: Housing and the Mining Boom

Abstract: The 2000s was a particularly eventful decade for both the international and Australian economies. There were: two recessions in many countries; the largest international financial crisis since the Great Depression; the ongoing rapid development of Asia; asset booms and busts; and, Australia experienced the longest sustained increase in commodity prices and the terms of trade in the nation's history. This paper provides an overview of the Australian economy's performance in the decade. Several key topics are elaborated on, including the development of Asia and implications for Australia, policy frameworks, and the opportunities and challenges facing the Australian economy, with a particular focus on the expansion of household balance sheets and the rapid growth in the mining economy.

International Transmissions to Australia: The Roles of the US and Euro Area

Abstract: This paper examines the influences of the two largest developed economies, namely the US and the Euro area, on Australia as an exemplar of a small open economy. To do so, we specify and estimate a structural VAR with bilateral linkages between the two large economies, and allow shocks originating there to affect the Australian economy. More specifically, we show the role of foreign demand shocks, the differential effects of US or European sourced inflation and interest rate shocks on the Australian economy, and the relative unimportance of these foreign shocks to variations in the value of the Australian currency

Productivity - the lost decade

Abstract: ‘Productivity’ is, at its simplest, a measure of how effectively or efficiently a workplace, a business or government agency, a region or a nation as a whole uses the resources at its disposal to produce goods and services which are in turn valued, in some way, by those who consume or use them. At the level of individual workplaces or firms, productivity measures are often expressed in terms of output per unit of a single factor of production, such as land or livestock (in agriculture), some measure of ore extracted (in mining), or, in manufacturing and services businesses, some measure of labour input such as person-hours. At more aggregated or economy-wide levels, productivity is usually expressed as a measure of value added (such as gross product) either per unit of labour input (labour productivity) or per unit of labour and capital services inputs (multifactor productivity). While, conceivably, other factors of production could be included in measures of multifactor productivity, including environmental factors such as water or energy, to date these have been extremely rare, but they may become more widely used as the policy focus on the use of finite natural resources (and their price) increases.

Introduction | RDP 2015-07: A Multi-sector Model of the Australian Economy

Abstract: This paper describes the dynamic stochastic general equilibrium (DSGE) model currently in use at the Reserve Bank of Australia. The model extends previous DSGE models of the Australian economy by incorporating multiple production sectors, including a resource sector. We estimate the model, describe its dynamic properties, illustrate its use in scenario analysis and use it to identify the sources of Australian business cycle fluctuations.

A note on inflation persistence in a fair wage model of the business cycle

Abstract: We generalize existing fair wage models to allow effort to vary over the business cycle. When effort is variable, wage fluctuations are partially compensated for by endogenous effort fluctuations, so that the sensitivity of marginal cost to output and employment variations is decreased. This new mechanism decreases the need for sluggishness to explain the observed high inflation persistence.