Examining the Economic Interactions between Australia's Regions: Results from a Global VAR

Abstract

Australia’s economy, like most national economies, is made up of several regional sub‐economies. How these regional economies interact is not well understood but is relevant to macroeconomic policy setting. We outline and estimate a flexible Global Vector Autoregression model using quarterly data on house prices, output, unemployment and population for the eight Australian states and territories from 1986 to 2016. Using region‐to‐region impulse response functions from this model we quantify the influence of shocks in one region on another. Our results highlight the high degree of influence of New South Wales on other regions over and above its size.