Transmission of a Resource Boom: The Case of Australia

Abstract

This paper presents evidence on the macroeconomic adjustment of a resource-rich country to a resource boom using the effects of Chinese industrialisation on Australia from 1988 to 2016. An SVAR model is specified, incorporating a proxy for Chinese resource demand and commodity prices to identify the effects of commodity supply and demand shocks on the Australian macroeconomy. We develop a multivariate historical decomposition to show how resource sector shocks lead the economy to deviate from a long-run projection. The paper identifies four phases of the transmission of the resource boom before its conclusion in 2015.

Keywords: Chinese resource demand, SVAR, multivariate historical decomposition, commodity demand shock, commodity supply shock

JEL Classification: C51, E32, F43, F62