Centre for Applied Macroeconomic Analysis Working Papers (CAMA)

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Access status: Open Access ,
Heterogeneous Firms, Growth and the Long Shadows of Business Cycles
(2026-11-02) Cristiana Benedetti-Fasil; Giammario Impullitti; Omar Licandro; Petr Sedláček; Adam Hal Spencer
Do ﬁrms diﬀer in their innovation response to business cycles? What economic forces shape this heterogeneity? And does it matter for aggregate propagation? We document substantial heterogeneity in ﬁrm-level R&D cyclicality, develop a theory to explain this fact, and validate its key mechanism in the data. In a tractable model of business cycles and innovation-driven growth, endogenous selection makes R&D particularly responsive to aggregate conditions for ﬁrms close to the exit margin. Consistent with this mechanism, ﬁrms closer to exit display more procyclical R&D in the data. Quantitatively, selection and endogenous growth interact powerfully: selection generates heterogeneous R&D cyclicality, while endogenous growth translates these heterogeneous responses into persistent aggregate effects. Ignoring heterogeneous R&D cyclicality misses roughly half of the long-run output cost of a severe recession.
Access status: Open Access ,
Together and Alone: Economic Viability of Batteries Powering the Western Mediterranean Cruise Corridor
(2026-10-29) Wiskich, Anthony
Batteries can power a large ship two ways: carried together onboard, or sent alone as speculative battery vessels (BVs) coupled to a host under way, powering it over a short segment, and recharging in port. Onboard storage is limited by heterogeneous charging opportunities; a BV is more flexible but carries high fixed costs. We assess both on the busy Western Mediterranean cruise corridor, subject to EU policy on port couplers (OPS) and emissions, using real schedules, prices and sea states to optimise pack sizes, charging times and BV routes for maximum fleet profit. At projected 2040 battery costs, onboard batteries are viable first, led in value order by the near-year-round hosts that exploit sunk OPS spare capacity, from an implied carbon price around €95/tCO2e. BVs switch on above about €175/tCO2e, below the implied all-in carbon price of about €260/tCO2e from the current regulatory stack. Four BVs supplementing onboard packs then electrify about 50% of the fleet’s at-sea energy against 36% without them, by serving hosts that leave the corridor seasonally and raising port-coupler utilisation. High BV utilisation requires traffic density or host route flexibility.
Access status: Open Access ,
Declining Fossil-Plant Utilisation and Falling Substitutability with Wind & Solar
(2026-10-28) Wiskich, Anthony
The elasticity of substitution between wind and solar (W&S) and fossil-fuel electricity generation is pivotal for the cost of decarbonisation, yet unsettled. It is not a constant: as intermittent W&S penetration deepens, integration costs rise and substitutability falls. We estimate this profile from the capacity margin—a reduced-form, supply-side measure of how fast utilisation of the retained fossil fleet falls as the W&S share rises. In a country panel through 2025 the elasticity is high—about nine at today’s 15% share of generation—and falls to about four as W&S penetration deepens; an independent, price-based integration-cost literature finds a similar decline. Because substitutability falls as abatement deepens, non-uniform carbon prices across regions grow more inefficient the deeper the abatement, strengthening the case for harmonising carbon prices internationally as the transition advances.
Access status: Open Access ,
Impacts from Autonomous EV Travel over Personal Aviation in Europe
(2026-10-27) Anthony Wiskich
Autonomous and electric vehicles could shift personal travel from aviation to roads, changing a basket of external costs – climate, accidents, noise, air pollution and land. We estimate the effect for European personal travel with a parsimonious discrete-choice model of car, rail and air, whose substitution elasticity sets a nonlinear “modal cliff” – the car-to-air switch as distance rises – estimated on European modal splits. Re-parameterising the car for a mature autonomous electric fleet draws travellers from both aviation and rail: personal air passengers on land-connected routes fall by a quarter (24.6% centrally, 18% to 32% across plausible distaste for driving, the key uncertainty). Because emissions concentrate in longer flights cars cannot replace, the shift reaches about a fifth (19%) of land-connected aviation CO2e and cuts its external cost by as much: with an electric fleet a switched flight’s warming is avoided almost in full, and short-haul switchers shed disproportionate noise and air-pollution costs. Automation neutralises driving’s accident cost and electrification its climate cost, more than halving driving’s external cost from 5.1ct/pkm to 2.2ct/pkm at a conservative 100€ per tonne CO2.
Access status: Open Access ,
From Power Shortages to Reliable Electricity: Grid Upgrading and Firm Performance in Nepal
(2026-10-26) Nirash Paija; Raja Timilsina; Rabindra Nepal; D’Maris Coffman
Reliable electricity is critical for firms in developing economies, yet improvements in electricity infrastructure may not translate immediately into better firm performance. This study examines whether grid upgrades were associated with changes in electricity reliability and firm performance in Nepal. We combine three waves of the World Bank Enterprise Survey (2009, 2013, and 2023) with city-level information on major grid upgrades and predetermined industry electricity intensity from the 2006/07 Census of Manufacturing Establishments. Using a difference-in-differences-in-differences (DDD) framework, we exploit variation across time, upgraded and comparison cities, and firms’ predetermined industry electricity intensity. The baseline estimates suggest that a one-standard-deviation increase in electricity intensity is associated with a 32.3-percentage-point larger decline in outage incidence and approximately 14.1 fewer hours of monthly outage exposure in upgraded cities relative to comparison cities. However, statistical significance is sensitive to model specification, and the outage-exposure estimate depends substantially on the composition of the comparison group. We find no statistically significant effects on real sales, employment, or labor productivity, while the positive estimates for total factor productivity provide only suggestive evidence of improvement. Pre-treatment placebo tests reveal no statistically significant differential changes, although the limited pre-treatment observations constrain their interpretation. Overall, the findings suggest that grid upgrading may improve electricity reliability, but the evidence is sensitive to identification and inference choices, and its implications for broader firm performance remain uncertain.
Access status: Open Access ,
Teflon Capitalism: Geopolitical Risk and Investment Funds
(2026-10-22) Daniel Marcel te Kaat; Jiancong Liu; Alexander Raabe
Why do stock markets appear resilient to geopolitical risk? Using ﬁrm-level measures of geopolitical risk exposure and data on investment funds’ holdings, we show how funds help swiftly restore valuations compressed during bouts of heightened geopolitical risk. More intense geopolitical shocks strengthen this stabilizing role. Declines in valuations of exposed but otherwise sound ﬁrms raise expected returns, attracting funds to acquire these assets at depressed prices, consistent with a search for yield mechanism. This behavior is more pronounced among funds with greater risk-taking capacity and weaker past performance. Funds’ tilt toward exposed stocks increases portfolio concentration, partly offset by higher cash buffers. In contrast, ultimate investors withdraw from exposed funds. The results are not driven by any particular industry—including defense or dual-use production—and are robust to a rich set of controls, ﬁxed effects, and placebo tests.
Access status: Open Access ,
Battery-Electric Ships: Economics, Limits and Prospects
(2026-10-15) Anthony Wiskich
Battery-electric propulsion is already the least-cost zero-emission option on short, high-utilisation routes, and is displacing incumbents among ferries, harbour craft and inland vessels. This chapter argues that its economics turn less on energy density than on the opportunity cost of stored energy: batteries must be cycled frequently to pay, so the binding constraint on longer routes is the inability to recharge at sea. Because shipping is a technology taker that inherits cheaper, safer, longer-lived cells from far larger road-transport and grid-storage markets, the economically electrifiable boundary moves outward with global cell production, largely independent of maritime demand—whereas synthetic marine fuels must finance their own scale-up. Comparing shipping with road freight isolates six differences: fuel price, energy efficiency and safety disadvantage maritime electrification, while lower sensitivity to battery weight and large electrical auxiliary loads on cruise and container ships favour it. We trace how powertrain architecture—from mechanical drive with power take-in to fuel-electric and pure-electric—and onboard DC distribution shape adoption, and add an often-overlooked energy-security dividend: electrification converts a disruptible fuel import into a one-off equipment purchase followed by domestic energy. Electrification advances along a predictable ladder, from harbour ferries through inland and short-sea vessels to port-anchored coastal routes, with deep-sea trades reachable only through infrastructure-mediated configurations, if at all. Low-regret policy levers include port electricity infrastructure, harmonised standards and broad emissions pricing.
Access status: Open Access ,
When Words Are Not Enough: Emotional Spillovers from Fed Chair Communication to Global Financial Markets
(2026-10-14) Yiru Chen; Muhammad Ali Nasir; Xingjie Wei
Given the important role of the Federal Reserve Chair, their communications may generate substantial cross-border effects on international financial markets. Building on this perspective, this article investigates whether emotional signals conveyed by the Fed Chair during FOMC post-meeting press conferences generate emotional spillovers to global financial markets. Using press conferences held between 2011 and 2025, we construct multimodal emotional indices from textual, vocal, and facial cues using machine learning techniques, and examine their high-frequency effects on exchange rates and equity markets across six major economies. Using local projection methods with minute-level event windows, the results show that Fed Chair emotional signals have immediate and economically significant impacts on global financial markets. Among different modalities, facial and textual emotions exhibit stronger and more robust effects than vocal signals. In particular, positive emotional cues are generally associated with increases in equity ETF returns, while exchange rate responses display substantial cross-country heterogeneity, with emerging market currencies tending to appreciate. We also provide evidence that the effects of emotional cues are non-additive and depend on cross-modal interactions, with vocal signals conditioning the impact of textual and facial emotions. Moreover, the findings show that the transmission of emotional spillovers is shaped by macro-financial vulnerability and global risk conditions. On the one hand, economies with higher vulnerability exhibit stronger responses to emotional shocks, indicating that macro-financial vulnerability acts as a moderating mechanism. However, the effects of emotional signals, especially facial and textual emotion, are amplified during periods of higher global uncertainty. Our main findings remain robust across several robustness checks. In particular, for vocal and facial emotions, coefficient equality is not rejected in 85.8% and 78.3% of the market horizon comparisons, respectively, indicating that the main findings are not systematically driven by the choice of emotion extraction algorithms.
Access status: Open Access ,
Shocks, Competitiveness, and Bilateral Real Exchange Rates in the Euro Area
(Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, 2026-10-09) Stefan Hohberger
This paper analyses the structural drivers of bilateral real exchange rate dynamics within the euro area and between the euro area and the United States over 1999–2025, using an estimated seven-country New Keynesian DSGE model of the world economy. The model features an ex ante identical structure across the country blocs and is estimated on a unified information set. International financial market shocks dominate the EA–US bilateral real exchange rate dynamics, with productivity differentials generating persistent euro appreciation pressure. Rising world demand and a secular decline in EA home bias exert partially offsetting euro depreciation pressure. Within the monetary union, the pre-crisis appreciation of France, Italy, and Spain relative to Germany reflects country-specific combinations of demand, supply, and trade disturbances that broadly unwind after 2008. Trend productivity differentials emerge as the dominant low-frequency driver, most starkly for Italy, where persistently slower trend productivity growth drives the bilateral real exchange rate through the sample. Model validation against empirical moments, exchange rate pass-through benchmarks, and off-model indicators confirms the empirical plausibility of the structural identification.
Access status: Open Access ,
Ancestral Distance and the Cultural Foundations of State Capacity
(Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, 2026-10-01) Trung V. Vu
This study investigates the role of long-term population relatedness in shaping global variation in state capacity. It argues that longer periods of ancestral separation are associated with greater divergence in intergenerationally transmitted civic norms governing voluntary compliance with state institutions. Ancestral distance may also hinder the international diffusion of effective state institutions, contributing to persistent cross-country differences in state capacity. The empirical analysis shows that countries with greater ancestral distance from the global frontier of effective state institutions exhibit lower state capacity. Dyadic regressions further indicate that ancestral distance is associated with greater divergence in state capacity. To examine a potential cultural foundation of this relationship, I exploit variation in cultural backgrounds among second-generation immigrants residing in the same country. I find that immigrant populations with greater ancestral distance exhibit larger differences in self-reported attitudes towards voluntary tax compliance. Taken together, the findings suggest that ancestral distance is an important historical predictor of cross-country disparities in state capacity, consistent with a role for divergence in civic norms and barriers to institutional diffusion.
Access status: Open Access ,
Forecasting Indian Core Inflation: Simple Made Simpler
(Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, 2026-09-25) Rishabh Choudhary; Chetan Dave; Chetan Ghate
Managing rapid economic growth in India naturally brings into focus the role of inflation forecasts for monetary and fiscal policy making. We investigate whether any of a large set of forecasting models improves upon a univariate auto-regression in forecasting core consumer price inflation. Using a monthly panel of forty macroeconomic and financial indicators we estimate nine classes of models that range from an auto-regression to various factor models, quantile regressions and machine learning specifications. In doing so, we also account for inflation expectations and climate change variables. Our root mean square forecast error model comparison metric operates at horizons of one, three, six and twelve months. With respect to the conditional mean, no model produces a forecast error significantly below that of an auto-regression at any horizon over the full comparison sample. With respect to the conditional distribution, quantile regressions that include estimated factors reduce forecast loss relative to a specification without such factors at every quantile and horizon. Our approach is general enough to be applicable to forecasting core inflation in other emerging market economies.
Access status: Open Access ,
Impact of Merchant Battery Energy Storage on Electricity Prices: The Case of Australia
(Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, 2026-09-21) Daniel Davi-Arderius; Rabindra Nepal; Tooraj Jamasb
Whether merchant arbitrage acts as a counter force to the "merit order effect" of solar and wind is important, but little is explored in the Australian National Electricity Market (NEM). This study fills this gap by studying the impact of charging and discharging stand-alone Battery Energy Storage Systems (BESS) on spot electricity prices considering their rapid recent growth in the wholesale electricity market. Australia is a global leader in BESS, and this study context is also relevant to other countries decarbonizing their energy mix. We use 5-minute wholesale price data between 2024 and 2025 and apply Quantile Regressions with instrumental variables. We find that stand-alone BESS has impact on spot-prices, but the effect is asymmetric: charging BESS increases the spot price, while discharging them decreases the spot price and thus driving self-cannibalisation. The net impact of charging and discharging on the electricity prices on consumer prices can be negative, especially under large scale penetration of BESS. The findings also offer some policy recommendations.
Access status: Open Access ,
Sign Restrictions and Supply-Demand Decompositions of Inflation
(Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, 2026-09-23) Matthew Read
Sign restrictions on the slopes of supply and demand curves are often used to identify historical decompositions in structural vector autoregressions. I show that the identifying power of these restrictions depends on both reduced-form parameters and realised forecast errors. Consequently, unlike many other structural objects, the strength of identification cannot be assessed from reduced-form parameters alone. Empirically, identified sets for historical decompositions of US inflation are typically largely uninformative, both in aggregate and in most expenditure categories. Existing inflation decompositions are therefore sensitive to auxiliary assumptions used to select among observationally equivalent models.
Access status: Open Access ,
Expectations-Based Capital Inflow Shocks
(Centre for Applied Macroeconomic Analysis, 2026-09-15) Jongrim Ha; Dohan Kim; M. Ayhan Kose; Francis E. Warnock; University of Virginia
Identifying the impact of capital inflows on output is challenging because inflows are forward-looking and respond to expectations about future economic conditions. We develop a new measure of capital inflow shocks using a simple and broadly applicable expectations-based framework that isolates the unexpected component of inflows by purging movements predicted by professional forecasters’ expectations. Estimates using the new measure for 27 emerging market economies indicate that capital inflows have sizable expansionary effects on output, operating through stronger domestic consumption and investment and easier financing conditions. Additional analysis indicates that equity-type inflows generate greater and more persistent effects than debt-type inflows, while large inflow reversals result in more pronounced effects than comparable increases in inflows. These results are robust to a wide range of alternative specifications.
Access status: Metadata only ,
Real-time forecasting of the Australian macroeconomy using flexible Bayesian VARs
(Crawford School of Public Policy, The Australian National University, 2020-04) Zhang, Bo; Nguyen, Bao H.
This paper evaluates the real-time forecast performance of alternative Bayesian Vector Autoregressive (VAR) models for the Australian macroeconomy. To this end, we construct an updated vintage database and estimate a set of model specifications with different covariance structures. The results suggest that a large VAR model with 20 variables tends to outperform a small VAR model when forecasting GDP growth, CPI inflation and unemployment rate. We find consistent evidence that the models with more flexible error covariance structures forecast GDP growth and inflation better than the standard VAR, while the standard VAR does better than its counterparts for unemployment rate. The results are robust under alternative priors and when the data includes the early stage of the COVID-19 crisis.
Access status: Metadata only ,
Estimation in non-linear non-Gaussian state space models with precision-based methods
(Crawford School of Public Policy, The Australian National University, 2012-01) Chan, Joshua C. C.; Strachan, Rodney W.
In recent years state space models, particularly the linear Gaussian version, have become the standard framework for analyzing macroeconomic and financial data. However, many theoretically motivated models imply non-linear or non-Gaussian specifications ?or both. Existing methods for estimating such models are computationally intensive, and often cannot be applied to models with more than a few states. Building upon recent developments in precision-based algorithms, we propose a general approach to estimating high-dimensional non-linear non-Gaussian state space models. The baseline algorithm approximates the conditional distribution of the states by a multivariate Gaussian or t density, which is then used for posterior simulation. We further develop this baseline algorithm to construct more sophisticated samplers with attractive properties: one based on the accept-reject Metropolis-Hastings (ARMH) algorithm, and another adaptive collapsed sampler inspired by the cross-entropy method. To illustrate the proposed approach, we investigate the effect of the zero lower bound of interest rate on monetary transmission mechanism.
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Bayesian estimation of DSGE models
(Crawford School of Public Policy, The Australian National University, 2012-01) Guerrun-Quintana, Pablo A.; Nason, James M.
We survey Bayesian methods for estimating dynamic stochastic general equilibrium (DSGE) models in this article. We focus on New Keynesian (NK)DSGE models because of the interest shown in this class of models by economists in academic and policy-making institutions. This interest stems from the ability of this class of DSGE model to transmit real, nominal, and ?scal and monetary policy shocks into endogenous ?uctuations at business cycle frequencies. Intuition about these propagation mechanisms is developed by reviewing the structure of a canonical NKDSGE model. Estimation and evaluation of the NKDSGE model rests on being able to detrend its optimality and equilibrium conditions, to construct a linear approximation of the model, to solve for its linear approximate decision rules, and to map from this solution into a state space model to generate Kalman ?lter projections. The likelihood of the linear approximate NKDSGE model is based on these projections. The projections and likelihood are useful inputs into the Metropolis-Hastings Markov chain Monte Carlo simulator that we employ to produce Bayesian estimates of the NKDSGE model. We discuss an algorithm that implements this simulator. This algorithm involves choosing priors of the NKDSGE model parameters and ?xing initial conditions to start the simulator. The output of the simulator is posterior estimates of two NKDSGE models, which are summarized and compared to results in the existing literature. Given the posterior distributions, the NKDSGE models are evaluated with tools that determine which is most favored by the data. We also give a short history of DSGE model estimation as well as pointing to issues that are at the frontier of this research.
Access status: Open Access ,
Regulatory stress tests and bank responses
(Crawford School of Public Policy, The Australian National University, 2020-03) Janda, Karel; Kravtsov, O.
In this paper, we investigate how the regulatory stress test framework in the European Union affects banks' investment decisions and portfolio choices. Using the causal inference and event study methodology, we document a substantial impact of EU-wide stress tests in 2011, 2014 and 2016 on the banks' portfolio strategies. The banks subject to regulatory stress tests tend to structure their portfolios with lower risk assets that is reflected in a decline in risk-weighted assets as compared to the control group. At the same time, the dynamic of realized risk that is measured by the proportion of non-performing exposure in portfolios remains unaffected. The estimates based on two alternative subsamples indicate that the magnitude of such effect rise with the increase in the size of the bank´s assets.
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A comparison of monthly global indicators for forecasting growth
(Crawford School of Public Policy, The Australian National University, 2020-04) Baumeister, Christian E.; Guerin, Pierre
This paper evaluates the predictive content of a set of alternative monthly indicators of global economic activity for nowcasting and forecasting quarterly world GDP using mixed-frequency models. We find that a recently proposed indicator that covers multiple dimensions of the global economy consistently produces substantial improvements in forecast accuracy, while other monthly measures have more mixed success. This global economic conditions indicator contains valuable information also for assessing the current and future state of the economy for a set of individual countries and groups of countries. We use this indicator to track the evolution of the nowcasts for the US, the OECD area, and the world economy during the coronavirus pandemic and quantify the main factors driving the nowcasts.
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Multi-product firms and product quality expansion
(Crawford School of Public Policy, The Australian National University, 2020-04) Pham, Van; Woodland, Alan
This paper develops and analyzes a model of international trade comprising multiproduct firms that can produce a range of product varieties distinguished by quality. First, it analyses the within-firm distribution of product quality and argues that firms export decisions are sensitive to their sizes and their product quality level. Specifically, a firm successfully exports both its high-end products and low-end products. Also, the sales of its top-end products relative to sales of its lower-end products is sensitive to the extent to which effective labour costs rise with quality. Second, the paper explores the heterogeneous effects of trade liberalization on multi-product firm behaviour and quality range choices. Under trade liberalization, small domestic firms experience a shrinkage of their product quality range, while even the new small-sized exporters narrow their product quality range to focus on an export variety. In contrast, existing exporters (large firms) can compete on both price and quality under trade liberalization by expanding their export product range toward both the low-end and high-end varieties. There is a greater expansion toward the lower-end varieties relative to the higher-end varieties under trade liberalization, this relative expansion decreasing as the variable trade cost decreases.

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