Pages: 224-231
Published: 30.04.2018
Abstract: The aim of this study is to test the asymmetric effect of output on inflation for the Australian economy, using a nonlinear autoregressive distributed lag (NARDL) model. The data are quarterly and cover the periods of 2000:01-2016:03. All data come from World Bank Databank. Using quarterly data for the period 2000:01-2016:03, we first investigate the nonlinear pass-through effects of output to inflation, using the Almon model. We then go on to employ the recently developed nonlinear autoregressive distributed lag (NARDL) model, to examine the asymmetric effects of output on inflation in the short and long runs. The results of Almon model show that the pass-through impact of output on inflation is nonlinear and negative for Australia economy. The Almon model estimates of the regression coefficients are found to satisfy the inverted U-shaped relationship between inflation and output. In particular, inflation increases (decreases) by 1.17 per cent if output decreases (increases) by 10 per cent, in the short run. On the other hand, inflation increases (decreases) by 0.65 per cent if output decreases (increases) by 10 per cent in the long run. The results of the NARDL model show that the symmetric effect of the output on inflation can be rejected in both the short and long run. These findings indicate that output affects inflation asymmetrically, in both the short run and the long run.
Key words: Almon model, nonlinear autoregressive distributed lag, Australian economy.
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