Discussion Papers

The Reserve Bank of New Zealand Bulletin, March 2007 | Go to article overview

Discussion Papers


2006

DP2006/09

Uncovering the hit-list for small inflation targeters: a Bayesian structural analysis

by Timothy Kam, Kirdan Lees and Philip Liu, November 2006

We estimate underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters--Australia, Canada and New Zealand--within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. We find that none of the central banks show a concern for stabilising the real exchange rate. However, all three central banks share a concern for minimising the volatility in the change in the nominal interest rate. The Reserve Bank of Australia places the most weight on minimising the deviation of output from trend. Tests of the posterior distributions of these policy preference parameters suggest that the central banks have very similar objectives.

DP2006/10

A new core inflation indicator for New Zealand

by Domenico Giannone and Troy Matheson, December 2006

This paper introduces a new indicator of core inflation for New Zealand, estimated using a dynamic factor model and disaggregate price data. Using disaggregate price data we can directly compare the predictive performance of our core indicator with a wide range of other 'core inflation' measures estimated from disaggregate prices, such as the weighted median and the trimmed mean. Predictive performance is assessed relative to a centred 2 year moving average of past and future annual inflation outcomes. The 2 year centred moving average is used as an analytical approximation of the inflation target from the PTA, which requires the Reserve Bank to keep annual inflation between 1 and 3 percent on average over the medium term. We find that our indicator produces relatively good estimates of this characterisation of core inflation when compared with estimates derived from a range of other models.

DP2006/11

Assessing the fit of small open economy DSGEs

by Troy Matheson, December 2006

We describe a simple extension of the Monacelli (2005) small open economy model that incorporates a non-tradable good, habit persistence and price indexation. The empirical fit of eight different specifications of this model is then tested in a Bayesian framework using data for three small open economies: Australia, Canada, and New Zealand. The results show that the model with a non-tradable good fits the data better than the one-good model across all specifications considered. In contrast to Rabanal and Rubio-Ramirez (2005), we find that adding price indexation to either the one- or two-good model deteriorates overall empirical fit.

DP2006/12

The present value model and New Zealand's current account

by Anella Munro and Rishab Sethi, December 2006

This paper tests the present value model of the current account on New Zealand data. …

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