The slow pace of recovery following the Great Recession raised concerns that trend growth in advanced economies may be permanently lower. Against this background, we set up and estimate a small open economy model with fiscal policy in which trend growth can permanently change. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. The estimates are used to assess the implications for fiscal policy. Around the second quarter of 2005, trend growth in per capita output is estimated to have fallen from just over 2 per cent to just below 0.2 per cent per year. The slowdown gives rise to a lasting transition which changes the composition of tax revenues and increases the government debt-to-output ratio.
About the presenter
Professor Mariano Kulish, School of Economics, the University of Sydney
Mariano Kulish received his PhD in Economics from Boston College in 2005. He then joined the Economic Research Department of the Reserve Bank of Australia. His research interests include macroeconomics, monetary economics and applied econometrics with a focus on understanding the behaviour of economies undergoing structural changes. Mariano has developed new techniques to solve and estimate rational expectations models with structural changes, and has applied them to policy-relevant settings; these include the recent period of monetary policy with zero interest rates, disinflation policies, and the impact of commodity price fluctuations in Australia. Mariano has published in international economics journals such as the Review of Economics and Statistics, the Journal of Monetary Economics, the Journal of International Economics, the Journal of Applied Econometrics, the Journal of Economic Dynamics and Control, and the European Economic Review.