RDP 2017-02: Anticipatory Monetary Policy and the ‘Price Puzzle’ Appendix A: Details of the VAR

Data and estimation code for our main results are available at https://www.rba.gov.au/publications/rdp/2017/2017-02-data.html.

The VAR used to create Figures 1 and 2 contains six variables, in order:

US real gross domestic product: The natural logarithm of seasonally adjusted quarterly real US GDP (Datastream code: USGDP…D).

Commodity prices: Index of commodity prices in US dollars (RBA statistical table I2 Commodity Prices).

Real gross domestic product: Seasonally adjusted chain volume GDP (ABS Cat No 5206.0).

Underlying inflation: Quarterly inflation of the trimmed mean consumer price index excluding interest and tax changes (RBA statistical table G1 Consumer Price Inflation).

Overnight cash rate: Overnight cash rate, averaged over the quarter. Nominal official cash rate until June 1998, and then the interbank overnight rate (RBA statistical table F1.1 Interest Rates and Yields – Money Market).

Real trade-weighted index: The real trade-weighted exchange rate index (RBA statistical table F15 Real Exchange Rate Measures).

The VAR is estimated using quarterly data from 1990:Q2 to 2015:Q4, with a lag length of three. It uses a recursive identification scheme: monetary policy is assumed to respond to, but not to affect, other variables contemporaneously, with the exception of the real exchange rate. We follow previous studies by constraining Australian variables from affecting the two foreign variables, either contemporaneously or with a lag. Our estimates are not sensitive to whether we order the cash rate or the real exchange rate last.