Question 1 and 2 ask you to document some real business cycle facts for the Australian economy. I encourage you to work within a group. Please read the instructions very carefully.

Questions that have already been clarified here will not be answered through emails. Download data from the RBA's website:

http://www.rba.gov.au/statistics/tables/index.html

To detrend the data series, you can either use the H-P filter procedure provided in Eviews and specify the lambda parameter to be 1600, or use an add-in file in Excel (see the Appendix on page 6 for detailed instructions on how to perform the filtering in Excel).

1. Some business facts on the national account Please only turn in the output from part (5)

(1) Download the following data series for the time period Sep-1985 to Dec-2013 and put them in one Excel file.

· "Real GDP" (Under the bulletin item "Output and Labour", find the excel file "Gross Domestic Product and Income - H1", "Real GDP" is Column B)

· "Household consumption", "Dwelling investment", "Business investment", and "Public demand" (Still under "Output and Labour", find "Demand and Income - H2", download Column B, D, F, and H)

· "Exports" and "Imports" (Under the bulletin item "International Trade and External Finance", find "International Trade and Balance of Payments - I1", download Column B and K)

(2) Create two new data series: Trade balance to GDP ratio = (Exports - Imports)/Real GDP, Total investment=Dwelling investment+Business investment.

(3) Take natural logarithms of Real GDP, Household consumption, Total investment, Public demand, Exports, and Imports (DO NOT take logarithms of Trade balance to GDP ratio).

(4) Using the H-P filter to detrend each series obtained in (3) and the Trade balance to GDP ratio to obtain the cyclical components of each series.

(5) Compute standard deviations of the cyclical components of each series, and their contemporaneous correlation with the cyclical component of Real GDP. Report these statistics in a table, and write a brief summary on whether each series is more or less volatile than output and whether it is procyclical or countercyclical.

Are these facts consistent with the business cycle facts documented in Stock and Watson (1999) for the US economy?

2. Some facts on the labour market

Please only turn in the output from part (5) and (6)

(1) Download the following data series for the time period Jul-1978 to Dec-2013 and put them in one Excel file:

· "Part-time employment", "Full-time employment", "Employment", "Unemployment rate", "Hours worked" (Under the bulletin item "Output and Labour", find the excel file "Labour Force - H5", download Column D, E, F, K, M. Please note that "Unemployment rate" is in percentage term.)

· "Real GDP" series for the time period Sep-1978 to Dec-2013 (Under "Output and Labour", find "Gross Domestic Product and Income - H1", download Column B)

(1) Think for yourself whether your findings make sense to you. You may write down some intuition for the results but you are not required to.

(2) Transform all the labour market data series into quarterly frequency (Business cycle facts are at quarterly frequency). For "Hours worked", use the sum of the three monthly observations in a quarter as the figure for that quarter. For all other data series, use the average value of the three monthly observations in a quarter as the figure for that quarter, for example, "Employment" for the Sep-1978 quarter can be constructed as (6033 + 6044 + 5998)/3.

(3) Use the quarterly "Hours worked" and "Employment" to create a new data series: Average hours worked = Hours worked/Employment.

(4) Take natural logarithms of all the quarterly labour market data series (except the "Unemployment rate" series) and Real GDP.2 Detrend all these series (including Real GDP) by H-P filter to obtain the cyclical components of each series.

(5) Compute standard deviations of the cyclical components of each series obtained in (4), and their cross correlations with the cyclical component of Real GDP with lead and lag up to 3 quarters, that is, compute3 corr(xt , yt+k), for k = -3, -2, -1, 0, 1, 2, 3.

Report these standard deviations and cross correlations in a table, and write a brief summary on whether each series is more or less volatile than output, whether it is procyclical or countercyclical, and whether it leads or lags output.