Australia saved from the financial crisis by policy or by exports?

There is general agreement that Australia weathered the Global Financial Crisis (GFC) better than many other advanced countries. There is less agreement as to why. In popular discussion, fiscal policy and continued strong export demand have been championed, with less support for monetary policy. But there is little formal empirical work which disentangles the relative contributions of these three factors. It is the purpose of this paper to make a start in this direction. It does so within the framework of a small vector-autoregressive model. The main finding is that the three factors together actually exacerbated the effects of the GFC on average over the 2009-2011 period, with most of the blame falling on fiscal policy. This seemingly anomalous finding is further explored and explained by households' response to cash hand-outs which were saved and not spent; indeed, it is conjectured that they took cash hand-outs and government predictions of doom as indicators that bad times were ahead and saved rather than spent in response.