RDP 9608: Modelling the Australian Exchange Rate, Long Bond Yield and Inflationary Expectations Appendix A: Data Sources

The data for Section 3 of the paper were collected for the period from September 1973 to June 1995. The data for Section 4 were collected for the period from December 1979 to June 1995. All indexes are based to 1989/90 = 100. This Appendix lists each of the variables used in the paper together with their method of construction and original data source(s).

Real exchange rate

Index.

Reserve Bank of Australia.

Terms of trade

Index; Seasonally adjusted; Goods and services measure.

The terms of trade was spliced to the goods and services trend measure at September 1974.

Australian Bureau of Statistics, Cat. No. 5302.0, Table 9.

Nominal Gross Domestic Product (GDP)

$m; Seasonally adjusted; Income measure.

Australian Bureau of Statistics, Cat. No. 5206.0.

Real Gross Domestic Product

Average measure; The growth variable is the quarterly growth of real GDP.

Australian Bureau of Statistics, Cat. No. 5206.0.

Cumulated current account

Current account balance; $m; Seasonally adjusted.

The cumulated current account for each quarter is calculated as the cumulative sum of quarterly current account balances from September 1959 and taken as a proportion of annualised GDP:

Australian Bureau of Statistics, Cat. No. 5302.0, Table 3.

Net foreign liabilities

Net International Investment Position at end of period.

$m.

Annual data for the period June 1974 – June 1985, quarterly data thereafter.

Expressed as a proportion of annual GDP.

June 1974-June 1978: Reserve Bank of Australia Occasional Paper No. 8.

June 1979-June 1995: Australian Bureau of Statistics, Cat. No. 5306.0, Table 1.

Fiscal

Commonwealth Government Budget Balance;

The fiscal variable for the four quarters of each fiscal year is measured as the change in the annual Commonwealth Government Budget Balance as a proportion of GDP, calculated on a quarterly basis.

1995/96 Commonwealth Budget Paper No. 1.

Cash rate

Reserve Bank of Australia Bulletin, Table F.l, and internal sources.

90-day bank bill

Reserve Bank of Australia Bulletin, Table F.l, and internal sources.

10-year bond rate

Reserve Bank of Australia Bulletin, Table F.2, and internal sources.

GDP in US dollars

Annual GDP for United States, Canada and the United Kingdom, measured in millions of US dollars, are applied as weights in the construction of world variables. The UK measure of GDP is quarterly and is converted into an annual measure.

World short interest rates

The world short interest rate is calculated as the weighted arithmetic average of short interest rates (3-month Treasury Bills) from the United States, Canada and the United Kingdom. The weights are each country's GDP, measured in US dollars.

World long interest rates

The world long interest rate is calculated as the weighted arithmetic average of long interest rates for the above countries, with GDP in US dollars used as weights.

Real interest rates

Real interest rates for the exchange rate section are calculated by deflating the interest rate by a corresponding measure of four-quarter-ended inflation . For the bond yield equation, US long bond yields are deflated by quarter-ended core inflation.

Yield differential

The yield differential is calculated as the difference between the Australian and world yield curves. The yield curve for Australia is measured as the difference between the cash rate and the 10-year bond rate. The world yield curve is measured as the difference between short and long nominal world interest rates.

Inflation

Treasury underlying rate.

Commonwealth Treasury.

Return on capital

The return on capital is measured as corporate GOS divided by gross capital stock. Australian Bureau of Statistics, Cat. Nos 5206.0 and 5221.0.

Markov Inflation Expectations

Constructed from a Markov switching model using underlying inflation and an output gap. The output gap is calculated as the percentage deviation of GDP(A) from a Hodrick-Prescott trend.

Survey of Consumer Inflation Expectations

The survey variable is the Westpac/Melbourne Institute survey of consumer inflation expectations over the next four quarters.

Financial Market Inflation Expectations

Constructed as the simple difference between yields on the nominal 10-year Government Bond and the indexed security of equivalent maturity.