# Macro Economics Report

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ECOS2002 Intermediate Macroeconomics Page 9 of 11

Topic: Business Cycle Properties and Macro Forecasting of the Australian Economy

You have to obtain and make use of the following data for Australia covering the period 1996 –
2008 (or the latest available observation at the time of your analysis). All data should be
quarterly or monthly, and seasonally adjusted if required.

• the inflation rate (based on a measure of the aggregate price level, e.g. GDP deflator or
CPI). You can construct the inflation data from GDP deflator or CPI series.
• the nominal exchange rate between Australia and the US.
• private final consumption (eg. private final consumption expenditure)
• gross fixed investment (eg. gross fixed capital formation)
• inventory investment
• unemployment rate
• productivity (you have to construct this using a definition)
• a short-term interest rate with maturity less than one year (eg. T-bills, T-notes,
overnight cash rate, Federal funds rate)
• a long term interest rate with maturity greater than 2 years (eg. Treasury bonds,
government bonds)
• money supply (eg. M2 or M3 or aggregate credit)
• real interest rate (you have to construct this using a definition)
• the real exchange rate (you have to construct this using a definition)
• the trade balance or current account.

Students may expand the above list of indicators if it helps better understand the

You will also need to transform most of the data somehow to produce economically meaningful
plots and tables. This is typically done by removing the trend (i.e. detrending) or expressing
in growth terms for most aggregate variables and prices (e.g. GDP and CPI) with a long-term
trend. It is also possible to form a meaningful data by combining some of the above variables.

(1) Using the following statistical means of summarizing the data: Correlations, Cross
correlations, Autocorrelations, Standard deviations, Report on (i) the cyclical nature of
each of these variables (e.g. pro-cyclical, counter-cyclical etc), (ii) indicator properties
(e.g. leading, lagging or coincidental indicators). In addition to providing the statistical
summary using graphs and/or tables, you must provide economic explanations on the
movements of these indicators, wherever appropriate.

and then,

(2) Provide brief forecasts for each of the following variables (i.e. (i) to (v) listed below)
with a detailed explanation following each number which explains how and why you
chose the number. At the end, summarize how your forecast on GDP growth and
inflation relates to your forecast on government policies, long-term interest rates, the
stock market and exchange rates, etc.
(i) Real GDP growth for 2009 Quarters II and III
(ii) The inflation rate measured as the growth rate in the implicit GDP price
deflator (the GDP Price Index) or CPI for 2009 Quarters II and III
(iii) Will the RBA change the cash rate at the Reserve Bank Board meeting on
June the 9th 2009 and by how much? Will the RBA change the cash rate at
the Board meeting on December 1st 2009 and by how much?
(iv) The average exchange rate for the Australian dollar (per US Dollar) to prevail
between June to December 2009.
(v) The year-over-year percentage change in Australian House Price Indexes in
Q3 2009 (relative to Q3 2008) as measured by the Australian Bureau of
Statistics 6416.0 - House Price Indexes: Eight Capital Cities.

Skills required: