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2006:
Uncovering the hit-list for small inflation targeters: A Bayesian structural Analysis (joint with with Tim Kim and Kirdan Lees) November 2006
Download (Paper / ANU WMD 2006 Presentation slides)
RBNZ Discussion paper: DP2006/09
CAMA Working paper: DP2006/09
The views expressed in this paper are those of the authors and should not be attributed to the Reserve Bank of New Zealand.
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 stabilizing the real exchange rate. All three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. The Reserve Bank of Australia places the most weight on minimizing the deviation of output from trend. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective.
A Small New Keynesian Model of the New Zealand Economy May 2006
Download (Paper / RBNZ DSGE workshop 2005 slides/ Matlab code updated)
This paper was written while I was visiting the Reserve Bank of NZ from Nov 2004 to July 2005
RBNZ Discussion paper: DP2006/03
The paper investigate whether a small open economy DSGE-based New Keynesian model can give a reasonable description of key features of the New Zealand economy, in particular the transmission mechanism of monetary policy. The main objective is to design a simple, compact and transparent tool for basic policy simulations. The structure of the model is largely motivated by recent developments in the area of DSGE modelling. Combining prior information and the historical data using Bayesian simulation techniques, we arrive at a set of parameters that largely reflect New Zealand's experience over the stable inflation targeting period. The resultant model can be used to simulate monetary policy paths and help analyze the robustness of policy conclusions to model uncertainty.
2004:
Improving implementation of inflation targeting in New Zealand: an investigation of the Reserve Bank's inflation errors July 2004
Download (Paper)
This paper was written as part of my Honours degree requirement at the University of Otago supervised by Professor Dorian Owen from the Economics Department
I investigate New Zealand's rate of inflation and its deviations from target using two new methods: 1) Rowe's (2002) new way of examining the correlations between inflation deviations from target and indicators. Any significant correlations, whether in a simple or multivariate framework, are interpreted as evidence against optimal policy setting. 2) Cukierman and Gerlach (2003) and Ruge-Murcia's (2001) new inflation bias hypothesis. As a counterpoint to Kydland and Prescott's (1977) and Barro and Gordon's (1983) time inconsistency explanation of inflation bias, Ruge-Murcia, Cukierman and Gerlach take the different view that even if central banks target the natural rate of unemployment or the potential level of output, some inflation bias might still exist if their loss function is asymmetric. I examine the inflation errors from 1982 to 2003 to investigate how information contained in these might be used to improve future inflation targeting in New Zealand.
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