Australia
Selected Issues

This Selected Issues paper on Australia highlights the IMF’s new Global Integrated Monetary and Fiscal Model (GIMF), which is used to examine the macroeconomic implications of alternative fiscal responses to higher revenue. Lower labor and capital income taxes, along with higher public investment, will generate the largest economic gains in the long term. The model shows that saving a portion of the additional revenue in the short term can help alleviate demand pressures and increase overall domestic savings.

Abstract

This Selected Issues paper on Australia highlights the IMF’s new Global Integrated Monetary and Fiscal Model (GIMF), which is used to examine the macroeconomic implications of alternative fiscal responses to higher revenue. Lower labor and capital income taxes, along with higher public investment, will generate the largest economic gains in the long term. The model shows that saving a portion of the additional revenue in the short term can help alleviate demand pressures and increase overall domestic savings.

I. Commodity Price Booms and Fiscal Policy Options in Australia1

A. Introduction

1. Over the last several years, rising commodities prices have contributed to an economic boom and buoyed tax revenue in Australia. In this chapter, the IMF’s new Global Integrated Monetary and Fiscal Model (GIMF) is used to examine the macroeconomic implications of alternative fiscal responses to higher revenue. GIMF is particularly useful for this application because its overlapping generations structure and rich array of fiscal instruments allow for a wide range of fiscal options to be analyzed while capturing their potential macroeconomic implications.

2. The results suggest that lower labor and capital income taxes, along with higher public investment, will generate the largest economic gains in the long run. The economic gains for Australia from other options such as lower consumption taxes or higher public consumption are not as large. The analysis assumes a permanent increase in demand for commodities, but it is difficult to judge whether the higher commodity prices seen in recent years reflect permanent or transitory shifts in demand.

3. The model also shows that saving a portion of the additional revenue in the short run can help alleviate demand pressures and increase overall domestic savings. Adjusting taxes slowly and allowing the fiscal balance to improve temporarily generally increases macroeconomic stabilization, although not in the case when labor income taxes are reduced. However, there are several reasons to think that increasing the fiscal balance would deliver greater macroeconomic stability in practice. These include the absence of liquidity-constrained households in this version of the model, the lack of frictions in labor supply, and the characterization of the labor-supply decision as continuous.

4. Although the analysis presented here provides useful guidance for fiscal policy, extending the analysis would provide additional insights. Useful extensions could include incorporating uncertainty about the permanence of the increase in commodity prices, including liquidity-constrained households, and adding frictions in the labor supply.

B. The Global Integrated Monetary and Fiscal Model

5. The Global Integrated Monetary and Fiscal Model (GIMF) is a multi-region, multiple-good model of the world economy that is derived completely from optimizing foundations. The version of the model used here has been configured with two types of goods: a tradable manufactured good; and a tradable commodity good. For this application, a two-region version of the model has been calibrated to represent Australia and the rest of the world. In each region there are households, firms, and a government. Households maximize utility derived from the consumption of goods and leisure. Firms combine capital and labor with commodities to maximize the net income from goods production. Governments consume goods, maintain a public capital stock, and provide transfers all of which they finance through a range of taxes. Governments also adjusts short-term nominal interest rates to provide nominal anchors, which here are assumed to be inflation targets. A brief description of key model features directly relevant to the application at hand is provided below. A slightly more detailed description of the model is presented in the appendix along with some of the key calibration choices.

6. Commodities are assumed to be a fixed endowment, available each period. Commodities are used as an intermediate input into the production of the tradable manufactured good. The commodity market is subject to perfect worldwide price arbitrage. The revenues from the commodity sector accrue to domestic factors (labor and domestic owners of commodity firms), foreign owners of commodity firms, and the government through taxation.

7. Fiscal policy is modeled with a wide range of expenditures and taxes. On the expenditure side, the government consumes goods, maintains a public capital stock which complements private production, and provides transfers. These activities are funded with taxes that fall on labor income, capital income, consumption expenditure, as well as nondistorting lump-sum taxes. A fiscal policy reaction function adjusts taxes to achieve a target fiscal surplus that stabilizes public debt at a desired level given spending.

8. The overlapping generations structure of GIMF increases the potential impact that fiscal policy can have on macroeconomic outcomes. Each period, households face a constant probability of death. Because of this, households discount future tax liabilities as they may not be around to pay them. The implication is that fiscal choices regarding when to fund current spending or tax changes influence households’ responses and thus the impact of these policy actions.

C. Permanent Increases in Commodity Prices and Fiscal Options

The Base Case: Adjusting Labor Income Taxes

9. A permanent increase in demand for commodities in the rest of the world is used to generate a permanent rise in commodity prices. The increase in demand raises commodity prices by roughly 10 percent after 10 years and 14 percent in the long run. The shock is implemented under perfect foresight. Households, firms, and the government understand the permanence and the full impact of the shock. The responses of several key macroeconomic variables from the Australian block of the model are traced out in Figure I.1. Here the fiscal policy rule adjusts the labor income tax rate to maintain the fiscal balance unchanged at baseline. Monetary policy is governed by an inflation-forecast-based policy rule.

Figure I.1.
Figure I.1.

Australia: Permanent Increase in Commodity Prices and Adjustment of Labor Income Taxes

(Percent or percentage point deviation from baseline)

Base-Case Fiscal Policy Rule Adjusting Labor Income Taxes–Solid

Citation: IMF Staff Country Reports 2008, 311; 10.5089/9781451802184.002.A001

Source: GIMF simulations.

10. Rising commodity prices lead to an economic boom in Australia. GDP increases on impact as private consumption and investment rise, and the gains are sustained with GDP higher by 1½ percent after 10 years. Consumption increases because households are wealthier given permanently higher returns from their equity in the commodity sector. Firms respond to higher demand by raising investment. On impact, the real exchange rate appreciates given the improvement in Australia’s terms of trade. This appreciation initially improves the ratio of net foreign liabilities to GDP. However, higher permanent wealth encourages Australian households to increase their foreign borrowing to finance current consumption and net foreign liabilities as a share of GDP rise by almost 4 percentage points relative to baseline after 10 years.

11. The surge in private demand puts pressure on inflation, prompting a tightening in monetary policy, while higher revenue allows fiscal policy to ease. On impact, the initial decline in import price inflation, resulting from exchange-rate appreciation, temporarily reduces inflation. However, the forward-looking monetary authority recognizes that demand and wage pressures will dominate and monetary policy tightens to return inflation to target. Wage pressures arise because the income effect from higher commodity sector returns reduces households’ labor supply, driving up the real wage. Holding public spending fixed at its baseline level, the increase in commodity sector revenue and the improvement in revenue from the booming domestic economy allow the government to reduce labor income taxes without deteriorating the fiscal balance.

Slowing the Adjustment in Labor Income Tax Rates

12. A delayed and gradual adjustment of labor income taxes mildly increases cyclical inflation pressures.2 in Figure I.2 the outcome when the labor income tax rate adjusts gradually (dashed) is compared to the outcome when the tax rate falls immediately (solid). With the tax rate assumed to remain unchanged for the first three years, the fiscal balance rises above baseline. Inflation rises more quickly in this simulation because the supply response is dampened. In the absence of the offsetting impact of declining labor income taxes, the initial effect on households’ labor supply from rising commodity sector returns is larger than in the base case, thereby reducing productive capacity. The larger reduction in labor supply leads to higher real wages, which also fuel inflation.

Figure I.2.
Figure I.2.

Australia: Permanent Increase in Commodity Prices and Gradual Adjustment of Labor Income Taxes

(Percent or percentage point deviation from baseline)

Base-Case Fiscal Policy Rule – Solid, Slowing the Adjustment in Taxes – Dashed

Citation: IMF Staff Country Reports 2008, 311; 10.5089/9781451802184.002.A001

Source: GIMF simulations.

13. The rise in public savings from slowing the adjustment in taxes increases overall domestic savings. With the fiscal balance allowed to improve, the public sector temporarily accumulates assets and because households discount the future tax reduction implied by those assets, overall domestic savings improve. The relative reduction in net foreign liabilities is roughly ½ percent of GDP after 10 years.3

14. These simulations suggest that temporarily running larger fiscal balances puts upward pressure on inflation, but the model may be overestimating the responsiveness of supply while underestimating the impact on demand in the base case. The response of labor supply to the real take-home wage has a notable impact on the outcome. The model characterizes the labor supply decision as continuous and there are no frictions in either labor supply or use. Consequently, the simulated response of labor supply in the base case may be faster than what would occur in practice. Turning to demand, the version of the model used here contains no liquidity-constrained households. The short-run demand effects of cutting labor income taxes in the base case would likely be larger if a portion of households faced liquidity constraints and simply spent all their disposable income in each period. With the short-run decline in taxes being larger than the long-run decline, liquidity-constrained households would spend all the temporary increase in their disposable income. However, in the base-case simulations with all households unconstrained, most of the temporary increase in disposable income is saved. In the presence of liquidity constraints, delaying the tax cuts and temporarily increasing public savings would help contain demand pressures as it would reduce the disposable income of liquidity-constrained households. Further, with realistic frictions in labor supply and demand, the supply-side implications of delaying the tax cut are likely to be limited.

Adjusting Other Tax Rates

15. Reducing the capital income tax rate results in the largest long-run economic gain, but adds to cyclical pressures. The comparisons contained in Table I.1 illustrate that reducing capital income taxes leads to higher inflation and interest rates relative to cutting labor income taxes. Firms respond to the greater return to capital by increasing investment demand. The new investment takes time to become productive capacity and demand pressures increase. In addition, the interaction of declining labor supply (given increased returns from the commodity sector) and firms’ increased labor demand (rising marginal product of labor given a larger capital stock) puts additional pressure on wages and thus inflation. In the long run, the higher capital stock and the associated rise in labor demand generate a larger increase in GDP than in the case where labor income taxes are reduced. Although a significant portion reflects the higher level for investment spending required maintaining a larger capital stock, the rise in private consumption is slightly above that achieved when labor income taxes are reduced. The benefits of a delayed and gradual decline in the capital tax rate are clearly illustrated by notably lower inflation and interest rates.

Table I.1.

Australia: Macroeconomic Impact of Reducing Capital Taxes

(In percent or percentage points)

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16. Cutting consumption and lump-sum taxes gives worse long-run outcomes than cutting labor and income taxes, and adds to cyclical pressures. Reductions in consumption and lump-sum taxes add to demand pressures without any offsetting supply-side benefits (Table I.2). This is evidenced by higher inflation and interest rates and a smaller long-run increase in GDP

Table I.2.

Australia: Macroeconomic Impact of Reducing Consumption and Lump-Sum Taxes

(In percent or percentage points)

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Permanently Increasing Public Spending

17. Permanently increasing public spending in response to higher revenue dampens the boom, but leads to lower real output in the long run relative to most other policy responses. In Figure I.3, the outcome when public spending permanently rises (dashed) is compared to the outcome when labor income taxes alone adjust to maintain an unchanged fiscal balance (solid). The initial increase in real activity is lower as higher public spending more than crowds out private spending. Households’ permanent wealth does not increase as much because the initial reduction in labor income taxes is temporary and taxes must rise in the long run. As a result, consumption rises by less and lower demand curtails firms’ investment spending. In the long run, the increase in GDP is smaller as the supply-side benefits of reducing labor income taxes are foregone to finance permanently higher public spending.

Figure I.3.
Figure I.3.

Australia: Permanent Increase in Commodity Prices and a Permanent Increase in Public Spending

(Percent or percentage point deviation from baseline)

Base-Case Fiscal Policy Rule – Solid, Permanent Increase in Public Spending – Dashed

Citation: IMF Staff Country Reports 2008, 311; 10.5089/9781451802184.002.A001

Source: GIMF simulations.

18. Increasing public investment spending alone leads to more significant long-run gains than raising public consumption spending, but has similar cyclical results. Maintaining the share in GDP of either public consumption or public investment leads to similar peaks in inflation and the policy interest rate (Table I.3). These are marginally higher than the outcome when both are increased because less private demand is squeezed out. The long-run rise in GDP, however, is higher when only public investment increases. This occurs because there is more scope for tax cuts with public investment a smaller share of GDP than public consumption and the complementarity between private and public capital encourages private investment.

Table I.3.

Australia: Macroeconomic Impact of Alternative Spending Responses

(In percent or percentage points)

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Temporarily Increasing Public Spending

19. If in addition to cutting labor income taxes, public consumption spending temporarily rises, cyclical demand pressures exceed those in the base case. In Figure I.4, the outcomes for several key macro variables when government consumption expenditure is temporarily increased (dashed) are compared to the base case (solid). The increase in public consumption spending raises total government spending by 1 percent of GDP on impact, it then declines back close to baseline after two years. As in the base case, the labor income tax rate is the fiscal instrument that adjusts to maintain an unchanged fiscal balance. With households anticipating the future tax cuts, temporarily higher public spending in the short run does not crowd out private spending and aggregate demand initially rises by more, generating greater demand pressure. The smaller initial decline in labor income tax rates leads to a larger fall in labor supply and rise in the real wage, further stimulating inflation. Monetary policy must tighten by more and output is forced below the level achieved in the base case in the second year.

Figure I.4.
Figure I.4.

Australia: Permanent Increase in Commodity Prices and a Temporary Increase in Public Spending

(Percent or percentage point deviation from baseline)

Base-Case Fiscal Policy Rule – Solid, Temporary Increase in Public Spending – Dashed

Citation: IMF Staff Country Reports 2008, 311; 10.5089/9781451802184.002.A001

Source: GIMF simulations.

Direction for Future Work

20. While the analysis presented above offers useful insights, there are a number of ways that the framework and the analysis techniques can be improved. The following are some extensions that would enhance the analysis of the macroeconomic implications of the fiscal response to a commodity-price-induced boom in Australia.

  • Additional frictions and constraints. The addition of liquidity constrained households as well as costly adjustment in labor would enhance the analysis of the cyclical impact of changing labor income taxes.

  • Incorporating uncertainty. When commodity prices change there is always considerable uncertainty about the source of the imbalance in the commodity market and thus the expected duration. This uncertainty will not only influence how private agents respond to higher commodity prices, but it will also influence the impact of the fiscal response. Analysis that incorporates alternative expectations about the duration of increases, thus allowing for expectational errors, would undoubtedly add useful insights.

  • Enriching the modeling of the commodity sector. The model assumes that commodities are a fixed endowment. A richer framework that allows capital and labor to augment commodity production would better capture short-run demand effects and long-term benefits. Further, allowing the public capital stock to play a role in the commodity sector would enable a more thorough analysis of the impact of public investment spending, which could have large implications in Australia where public transportation infrastructure plays a key role in commodity supply.

  • More regions and goods. This would enable analysis of how the source of the rise in commodity prices might matter for the macroeconomic outcomes. Other research work has illustrated that trade-related factors that are dependant on the source of rising commodity prices have important macroeconomic consequences for open economies.4 These in turn could have an impact on the stabilization and long-run effect of fiscal actions.

Appendix I.1: A Brief Overview of the Global Integrated Monetary and Fiscal Mode

1. Global Integrated Monetary and Fiscal Model (GIMF) is a multi-region, multiple-good model of the world economy that is derived completely from optimizing foundations. The version of the model used here has been configured with two types of goods: a tradable manufactured good, and a tradable commodity good. In each region there are three types of behavioral agents: households, firms, and a government. A brief overview of the behavioral characterization of these agents is provided below, but the interested reader should look to Kumhof and Laxton (2008) for a detailed description of the theoretical derivation of the model.

Households

2. Households have finite lives, consume goods, and via unions are the monopolistic suppliers of differentiated labor inputs to all domestic firms. Households exhibit habit persistence in consumption contributing to real rigidities in economic adjustment. Monopoly power in labor supply implies that households’ wages contain a markup over the marginal rate of substitution between consumption and leisure. This monopoly power is implemented via unions, which purchase labor from households and on sell it to firms. Unions are perfectly competitive in their input markets, but monopolistically competitive in their output market. The markup, or union dividend, is distributed lump sum to households in proportion to their share in aggregate labor supply. Because of adjustment costs in wage contracts, aggregate nominal rigidities arise through wage bargaining between unions and firms. Households own the domestic manufacturing firms, and a portion of the commodity sector. The market for capital is competitive. Capital accumulation is subject to adjustment costs that contribute to gradual economic adjustment.

Firms

3. Firms produce two types of goods: a tradable noncommodity good; and a tradable non-energy commodity good. Goods are assumed to be differentiated, leading to market power that enables firms to charge a markup over the marginal cost of production. Goods prices are subject to adjustment costs that, along with slowly adjusting wages, give rise to the gradual adjustment of prices to economic disturbances. The characteristics of the final bundle of goods consumed in each region reflects the preferences of households and firms over all goods and, consequently, international trade is driven by the interaction of preferences and relative prices.

4. Capital, labor, and commodities are combined to produce the tradable non-commodity good. The production process is given by:

Y=f(A,K,L,QC,MC),(1)

where Y denotes the output of the noncommodity tradable good, A denotes the level of labor augmenting productivity, K is the capital input, L is the labor input, QC is the domestically produced commodity input, and MC is the imported commodity input. The production technology, f, embodies nested constant elasticity of substitution. There is a constant elasticity of substitution between commodities and a capital-labor composite and there is a constant elasticity of substitution between capital and labor deriving the composite.

5. Commodities are specified to be an exogenous endowment. The world commodity market is subject to perfect worldwide price arbitrage. Total commodity revenues are paid out to three recipients: domestic factors, the domestic government, and foreign owners. Revenue allocation is given by:

PtCXtC=GtC+DtC+FtC,(2)

where PC is the domestic currency price of commodities, XC is domestically produced commodities, GC is the commodity sector revenue accruing to the government, DC is commodity sector revenue accruing to domestic factors, and FC is commodity sector revenue accruing to foreigners.

6. Distributors deliver goods to final users. Domestic and foreign tradable manufactured goods are combined by distributors, which then use the stock of public infrastructure to deliver them to final purchasers (households, firms, and the government).

Government

7. Governments finance expenditure through a range of taxes and maintain nominal anchors. Governments purchase final goods for public consumption and to maintain public infrastructure. Governments also provide transfers. These activities are financed through labor income taxes, capital income taxes, consumption taxes, and lump-sum taxes on households. Governments also adjusts short-term nominal interest rates to maintain nominal anchors. Here these are assumed to be inflation targets achieved by following inflation-forecast-based monetary policy rules.

Appendix Table I.1.

Australia: Key Steady State Calibration Values

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References

  • Bebee, Jared T., and Benjamin Hunt, 2008, “The Impact on the United States of the Rise in Energy Prices: Does the Source of the Energy Market Imbalance Matter?” IMF Staff Papers, Vol. 55, No. 2.

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  • Elekdag, Selim A., and others, 2008, “Oil Price Movements and the Global Economy: A Model-Based Assessment,” IMF Staff Papers, Vol. 55, No. 2

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  • Hunt, Benjamin, 2008, “The Impact of Commodity Prices on Australia’s and New Zealand’s Equilibrium Real Effective Exchange Rates: Some Insights from GEM,” forthcoming IMF Working Paper.

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  • Kumhof, Michael, and Douglas M. Laxton, 2008, “Chile’s Structural Fiscal Surplus Rule: A Model-Based Evaluation,” forthcoming IMF Working Paper.

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1

Prepared by Ben Hunt (ext. 36361).

2

This result also occurs if the commodity price shock is temporary and of varying degrees of persistence.

3

If permanent public savings of 1.1 percent of GDP are allowed to accrue, net foreign liabilities increase by just 0.6 percent of GDP in the long run versus over 1 Vi percent when the increase in public savings is temporary.

References

  • Benito, Andrew, 2007, “What Risks Do Housing Markets Pose for Global Growth?” World Economic Outlook (Washington: International Monetary Fund), pp.7275.

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  • Coleman, Andrew, and John Landon-Lane, 2007, “Housing Markets and Migration in New Zealand, 1962-2006,” RBNZ Discussion Paper DP2007/12.

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  • Debelle, Guy, 2008, “Recent Debt Market Developments,” Address to the Debt Markets 2008 Summit, Sydney, July 28, 2008.

  • Ellis, Lucy, 2006, “Housing and Housing Finance: The View from Australia and Beyond,” RBA Research Discussion Paper No. 2006-12.

  • Girouard, Nathalie, Mike Kennedy, and Christopher André, 2007, “Has the Rise in Debt Made Households More Vulnerable?” OECD Economics Department Working Paper No. 535 (Paris, Organization for Economic Cooperation and Development).

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  • Harrison, Ian, and Chris Mathew, 2008, “A Structural Approach to the Understanding and Measurement of Residential Mortgage Lending Risk,” Reserve Bank of New Zealand (March).

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  • Parlett, Natalie, and Anthony Rossiter, 2004, “Residential Property Investors in Australia,” RBA Bulletin (May).

  • Rozhkov, Dmitriy, 2007, “The “Home Bias” in New Zealand Households’ Portfolios,” New Zealand: Selected Issues, IMF Country Report No. 07/151 (Washington: International Monetary Fund).

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  • Ryan, Chris, and Chris Thompson, 2007, “Risk and Transformation of the Australian Financial System,” RBA Conference—Sydney, August 20-21, 2007.

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  • Terrones, Marco E., 2004, “What Explains the Recent Run-Up in House Prices?” World Economic Outlook (Washington: International Monetary Fund), pp.7476.

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1

Prepared by Dmitriy Rozhkov (ext. 39745).

2

Jing Li (MCM consultant) and Rodolfo Maino (MCM) contributed to the stress test analysis of rollover risks (Section C).

3

Banks account for slightly over one-half of total assets of the Australian financial system. The four large banks account for about two-thirds of the total banking system assets

4

In this chapter, “small banks” refers to all banks apart from the large four. There are 57 such small banks in Australia, and the largest of them accounts for about 5 percent of total banking system assets.

5

Low-doc mortgages comprise 7 percent of total mortgages, and nonconforming loans (the closest equivalent of subprime that exists in Australia) an additional 1 percent

1

The increased issuance of short-term securities between banks is reflected in the amounts of “due from other banks,” which have increased by more than 50 percent in six months for some large banks.

2

Most of the growth in deposits was due to CDs, which increased at an annual rate of over 60 percent since September 2007.

3

Reserve Bank of Australia, Financial Stability Review, March 2008.

4

Ibid.

5

Reserve Bank of Australia, Statement on Monetary Policy, August 2008 (Table 14).

6

Australia: Financial System Stability Assessment, IMF Country Report No. 06/372.

7

Available data on Australian external debt indicates that debt with residual maturity of less than 90 days accounts for about 36 percent of total debt, and 73 percent of debt with residual maturity of less than one year. Since financial corporations account for about 75 percent of total external debt, the stress test scenario assumed a similar structure for external debt of the banking system.

8

According to the Australian Prudential Regulation Authority, 11 percent of small banks’ liabilities are securitized, compared to 2 percent for large banks. However, most of these securitized liabilities are long-term, with maturity over one year.

9

Australia: Financial System Stability Assessment, IMF Country Report No. 06/372.

10

This was especially the case in the first quarter of 2008, when the average maturity of newly issued bank bonds in fact dropped to around two years, compared to 4½ years prior to the market turmoil. The average maturity of new issuance has since rebounded to normal levels. For details, see Debelle (2008).

11

See Ellis (2006) for a description of the features of taxation systems relevant to housing markets in a number of developed countries. Rozhkov (2007) discusses the impact of taxation system on the housing market in the context of New Zealand.

12

Ryan and Thompson (2007) note that the riskiness of banks’ mortgage portfolios has increased, but conclude that the banking system as a whole is sound and well placed to weather unexpected adverse events.

13

Benito (2007) extended Terrones’ study by using an updated data set and country-specific equations. However, the same variables were used for all countries.

14

New Zealand: 2008 Article IV Consultation—Staff Report; and Public Information Notice on the Executive Board Discussion (IMF Country Report No. 08/163), and Coleman and Landon-Lane (2007).

15

The estimate is based on comparing the cumulative house price inflation over the period 2001-07 (112 percent) with predicted value for the same period from the regression (102 percent). This implies that house prices are 5 percent higher than their equilibrium value.

16

Simpler methods based on housing affordability measures result in slightly larger estimates of overvaluation. For example, average house prices to incomes ratio was 24 percent above its long-run average in March 2008, indicating that the house prices would need to fall by 18 percent to restore the long-run equilibrium. However, this measure would also be reduced sharply if real incomes grow as expected in the period ahead. Real personal disposable income is expected to grow strongly in 2008-09, driven by a 20 percent increase in the terms of trade and cuts in personal income taxes.

Australia: Selected Issues
Author: International Monetary Fund
  • View in gallery

    Australia: Permanent Increase in Commodity Prices and Adjustment of Labor Income Taxes

    (Percent or percentage point deviation from baseline)

    Base-Case Fiscal Policy Rule Adjusting Labor Income Taxes–Solid

  • View in gallery

    Australia: Permanent Increase in Commodity Prices and Gradual Adjustment of Labor Income Taxes

    (Percent or percentage point deviation from baseline)

    Base-Case Fiscal Policy Rule – Solid, Slowing the Adjustment in Taxes – Dashed

  • View in gallery

    Australia: Permanent Increase in Commodity Prices and a Permanent Increase in Public Spending

    (Percent or percentage point deviation from baseline)

    Base-Case Fiscal Policy Rule – Solid, Permanent Increase in Public Spending – Dashed

  • View in gallery

    Australia: Permanent Increase in Commodity Prices and a Temporary Increase in Public Spending

    (Percent or percentage point deviation from baseline)

    Base-Case Fiscal Policy Rule – Solid, Temporary Increase in Public Spending – Dashed