July 2024
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Assessing Potential Output and the Output Gap in Australia
The output gap – the difference between actual output and potential output – is an important consideration for monetary policy as it is a measure of the extent of spare capacity in the economy. This article explains how RBA staff form an assessment of potential output and the output gap. We draw on a range of model-based estimates, capacity utilisation indicators and activity measures. Model-based estimates give a quantitative assessment of the level of spare capacity in the economy, but there is considerable uncertainty modelling unobserved concepts like potential output and the output gap. Ultimately, assessing spare capacity in the economy requires careful judgement in weighing up all available information, which the RBA sets out in its quarterly Statement on Monetary Policy.
Skills Match Quality Following the COVID-19 Pandemic
The strength in labour market conditions after the COVID-19 pandemic caused many individuals to either enter the labour market or to change jobs. These labour dynamics may have an influence on both recent and longer term productivity outcomes by affecting how well workers’ skills are matched to their new jobs. We use self-reported measures from the Household, Income and Labour Dynamics in Australia Survey to examine whether workers are better or less well matched to their jobs following the pandemic, and whether these skills matches may change in the future. Overall, based on the data, we find there is little evidence that the recent increase in labour mobility affected how well workers are matched to their jobs up until 2022, which suggests that this is not a key driver of recent slow productivity growth.
How the RBA Uses the Securitisation Dataset to Assess Financial Stability Risks from Mortgage Lending
The RBA’s Securitisation Dataset provides timely and detailed data on the individual mortgages underlying Australian residential mortgage-backed securities. This dataset complements other data sources the RBA uses to form its assessment of financial stability risks arising from mortgage lending. Understanding the representativeness of the dataset in relation to the broader mortgage market for key risk indicators helps to ensure that assessments are formed on a reliable basis. This article discusses the usefulness of the dataset for complementing the RBA’s broader monitoring and assessment of risks from housing lending. However, caution is needed when using the dataset to assess risks from new lending, and when monitoring arrears. Information from the dataset is one of a number of sources the RBA uses in monitoring financial stability risks and is combined with other sources of complementary data, including that provided by lenders to the Australian Prudential Regulation Authority.
Recent Drivers of Housing Loan Arrears
Housing loan arrears rates have increased from low levels since late 2022, with banks expecting them to rise a little further from here. Understanding what has been driving this increase is important for the RBA’s assessment of risks to financial stability and the economic outlook. Using loan-level data for variable-rate owner-occupier borrowers, we find that the main drivers have been challenging macroeconomic conditions and a modest ageing of the loan pool rather than risks specific to lending in a given year. Overall, highly leveraged borrowers have been most likely to fall into arrears since 2022, consistent with their generally higher arrears rates and greater vulnerability to challenging economic conditions. We assess that financial stability risks remain contained as these borrowers represent a relatively small share of total housing lending and very few loans are estimated to be in negative equity, where the loan amount exceeds the property resale value.
The Australian Repo Market: A Short History and Recent Evolution
In 2019, the repurchase agreement (repo) market became the second largest onshore short-term wholesale funding market in Australia. In addition to its size, the range of participants and diversity of collateral used to obtain funds under repo has grown in recent years. As a result, the repo market provides valuable information about conditions in short-term wholesale funding markets. This article describes the recent growth in the Australian repo market and discusses the pricing in the repo market relative to other benchmarks.
Explainer: The COVID-19 Pandemic: 2020 to 2021
This Explainer summarises the main economic effects of the COVID-19 pandemic in Australia from 2020 to 2021. It describes how policymakers responded to the pandemic, how the economy subsequently recovered, and some longer lasting challenges and disruptions.
The graphs in the Bulletin were generated using Mathematica.
ISSN 1837-7211 (Online)