Natural-rate estimates for the Australian states: An SVAR approach

It has long been recognized that economic policy based on national economic indicators may be inappropriate when evaluated from the point of view of individual regions making up the national economy. One indicator which has recently been widely used as a basis for the formulation of macroeconomic policy is the natural rate of unemployment. There have been various estimates of the natural rate for Australia as a whole in the recent past and these have been used for the assessment of macroeconomic policy. There are, however, no estimates of natural rates for the Australian States and so no basis for the evaluation of macroeconomic policy from the perspective of the States. This paper fills this gap in the literature and reports estimates of a series for the natural rate for each of the Australian States derived from a structural vector auto-regressive (SVAR) model. We compare the estimated natural rates to each other and to estimates of the national natural rate. We go on to an evaluation of national economic policy from the point of view of the States.