Research Discussion Paper – RDP 7702 Inflation and Economic Stability in a Small Open Economy: A Systems Approach


This paper was prepared for the Carnegie-Rochester conference in public policy held at the University of Rochester in April 1977. As well as presenting an analysis of Australia's recent inflationary experience, it illustrates the development of the RBA76 model of the Australian economy. The methodology used in the model building project, and the model itself, are still being developed, and hence the particular parameter values, and the discussion of the causes of inflation in Australia, are not intended to be definitive. Indeed, formal analysis of the type undertaken here may reveal more about the model than about the economy. A forthcoming discussion paper on the responses to several monetary impulses will provide further information on the properties of the model, and a discussion of the changes which have been made to the structure since the publication of Research Discussion Paper 7601.

Several economists, including Andre Cohen, Jan Eberhardt, Jim Henderson, Chris Higgins, Neil Johnston, Lyle Procter and Don Stammer provided helpful comments on the current paper, although neither they nor our employer are necessarily in agreement with all aspects of the model, or with our interpretation of the reasons for Australia's recent inflationary experience.