The Industrial Impact of Economic Uncertainty Shocks in Australia*

Abstract

Understanding the impact of economic uncertainty shocks at the industrial disaggregated level is critical for both fiscal and monetary policy response. We estimate an SVAR model using quarterly Australian data from 1987:2 to 2018:4. The results of this paper emphasise that individual industries have a unique response to an economic uncertainty shock and do not necessarily reflect the response of the broader aggregate macroeconomy. We found the following stylised facts: (i) The construction industry is the most negatively impacted industry by an economic uncertainty shock in terms of investment, output and employment in Australia, (ii) The financial and insurance services industry also endures a substantial decline to the shock, particularly on investment and employment indicators, and (iii) Economic uncertainty is shown to have less impact on the mining, health care and social assistance and public administration and safety industries.