What does this research mean for the field?

Sectoral shocks accounted for a substantial portion of aggregate economic volatility in Australia prior to the COVID-19 pandemic, whereas pandemic-era volatility was driven primarily by aggregate shocks. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.NEUTRAL.

What question did this study set out to answer?

To evaluate the relative importance of industry-specific shocks versus aggregate shocks in driving overall Australian economic fluctuations between 1994 and 2023.

September 5, 2026Australian Economic Review

How Important Are Sectoral Shocks in Australia?

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Authors

LTLongye Tian JMJames Morley

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Overview

Econometric analysis reveals sectoral shocks drove pre-pandemic aggregate economic volatility in Australia before shifting during COVID-19, highlighting changing propagation dynamics.

Key Points

To evaluate the relative importance of industry-specific shocks versus aggregate shocks in driving overall Australian economic fluctuations between 1994 and 2023.
Analyzed disaggregated industrial production time-series data for the Australian economy from 1994 to 2023 across pre-COVID and COVID-19 periods.
Estimated both statistical factor models and structural factor models, with the structural approach explicitly accounting for production network linkages.
Sectoral shocks drove a substantial portion of pre-pandemic aggregate economic volatility, with the structural model attributing the majority of fluctuations to industry-level shocks.
The onset of the COVID-19 pandemic shifted economic dynamics toward common variation, with the structural model attributing pandemic-era volatility predominantly to aggregate shocks.
Pre-pandemic sectoral volatilities and shock transmission mechanisms in Australia closely mirrored US Great Moderation dynamics despite distinct differences in economic structure.

Cite This Study

Tian et al. (2026) studied this question.

synapsesocial.com/papers/6a9bd4046b95aff0620eb5af https://doi.org/10.1111/1467-8462.70067

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September 5, 2026Australian Economic Review

How Important Are Sectoral Shocks in Australia?

View Full Paper

Ask AI

Bookmark

Authors

LTLongye Tian JMJames Morley

Discussion

Member takes

Overview

Econometric analysis reveals sectoral shocks drove pre-pandemic aggregate economic volatility in Australia before shifting during COVID-19, highlighting changing propagation dynamics.

Key Points

To evaluate the relative importance of industry-specific shocks versus aggregate shocks in driving overall Australian economic fluctuations between 1994 and 2023.
Analyzed disaggregated industrial production time-series data for the Australian economy from 1994 to 2023 across pre-COVID and COVID-19 periods.
Estimated both statistical factor models and structural factor models, with the structural approach explicitly accounting for production network linkages.
Sectoral shocks drove a substantial portion of pre-pandemic aggregate economic volatility, with the structural model attributing the majority of fluctuations to industry-level shocks.
The onset of the COVID-19 pandemic shifted economic dynamics toward common variation, with the structural model attributing pandemic-era volatility predominantly to aggregate shocks.
Pre-pandemic sectoral volatilities and shock transmission mechanisms in Australia closely mirrored US Great Moderation dynamics despite distinct differences in economic structure.

Cite This Study

Tian et al. (2026) studied this question.

synapsesocial.com/papers/6a9bd4046b95aff0620eb5af https://doi.org/10.1111/1467-8462.70067

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