RDP 7903: Monetary Rules: A Preliminary Analysis Appendix A: The RBA79 model

P.D. Jonson and R.G. Trevor

September 1979

1. Household expenditure, demand for money

2. Rate of growth in business fixed capital stock

3. Rate of growth in labour demand, normal output

4. Exports, desired inventories

5. Imports

6. Output

7. Price of output

8. Price of government current expenditure

9. Price of exports

10. Average weekly earnings

11. Labour supply

12. Non-bank demand for government securities

13. Net capital inflow

14. Bank advances

15. Direct taxes

16. Indirect taxes

17. Bond rate

18. Exchange rate

19. Bill rate

20. Expected sales

21. Foreign Reserves

22. Domestic credit expansion

23. Volume of money

24. Change in inventories

25. Business fixed capital stock

26. Labour demand

Notes:
  1. A subscript of zero indicates a constant, but no estimates are given since these terms are, in general, under-identified.
  2. The figures in brackets are ‘t-ratios’, defined as the ratio of the parameter to its asymptotic standard error. The distribution of the ‘t-ratio’ is asymptotic standard normal.
  3. If t-ratios are not given, the relevant parameter values are constrained.
  4. The estimation period is from 1959(3) – 1975(4).
  Variables used in the model are:[17]
A bank advances to private sector
B bonds held by private non-bank groups
c* real cash benefits to persons
C domestic credit
CTB* effective company tax base
d household expenditure
E exchange rate ($A/$US)
F net Australian capital owned by overseas residents
g1* real government current expenditure
g2* real government capital expenditure
g3* real public authorities capital expenditure
h* required liquidity ratio of the banking sector
i real imports of goods and services
I* interest payments on government debt
k proportionate change in business fixed capital
K real stock of business fixed capital
l proportionate change in employment
L employment
M stock of money (M3)
MISC* miscellaneous items in the money supply identity
N labour supply
P price of output
pg price of government consumption expenditure
Pi* Australian import prices ($US)
Pw* world prices ($US)
Pwl* price of wool ($US)
Px price of exports
QA* dummy variables for requests to limit advances, 1961
QDS* synthetic variable for US dock strike, 1969
QE* synthetic variable for expectations about the exchange rate, 1972-6
QER* synthetic variable for timing of exchange rate changes, 1972, 1973, 1974, 1976
Ql* dummy variable for shake out effect in labour market 1974-76
Qr* dummy variable for increases in commercial bill rate, 1974
QS* synthetic variable for increases in official interest rates, 1961, 1973
Qt* time trend starting in 1974(4), zero earlier
QUS* dummy variable for devaluation of $US, 1973
r 10 year bond rate
rbl 90 day commercial bill rate
reu* 90 day Eurodollar rate
rw* 10 year US bond rate
R gold and foreign exchange reserves
SD* real statistical discrepancy
t* time trend starting in 1959(3).
t1 average personal income tax rate
t11* index of income tax rate schedule
t2* average rate of tax on expenditure
t3* average rate of tariffs
t4* average rate of payroll tax
t5* company tax rate
T1 receipts of direct taxes
T2 receipts of indirect taxes
v real stock of inventories of goods
wA* real award wages
W average weekly earnings
x real exports of goods and services
xw* real world exports of goods and services
y real output (net of depreciation)
Z* population of working age
λ1* target rate of growth of real output, value = .012
λ2* target rate of monetary growth, value = .021
λ3* trend rate of technical progress, value = .0045
λ4* trend rate of growth of labour productivity (λ3/(1−.3))
λ5* trend rate of growth of real award wages, value = .0029
λ6* differential growth rate between sales and stock of inventories of goods, value = −.0011

Footnote

The items marked with an asterisk are exogenous for estimation. [17]