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2010:
The effects of international shocks on Australia’s business cycle forthcoming Economic Record.
Download (Journal version)
RBA Research Discussion paper: DP2008/08
This paper examines the sources of Australia's business cycle fluctuations. The cyclical component of GDP is extracted using the Beveridge-Nelson decomposition and a structural VAR model is identified using robust sign restrictions derived from a structural small open economy model. In contrast to previous VAR studies, international factors are found to contribute to over half of the output forecast errors whereas demand shocks have relatively modest effects.
Stabilization bias for a small open economy: The case of New Zealand forthcoming Journal of Macroeconomics.
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Using a fully specified DSGE model, this paper investigates the relationship between a central bank’s policy objectives and the stabilization bias. The model is estimated using data from New Zealand. Results indicate that the size of the stabilization bias is nearly twice as large for a small open economy relative to that of closed economies. The results also indicate that the size of the stabilization bias is increasing with respect to the policymaker’s preference for exchange rate stabilization.
2009:
Uncovering the hit-list for small inflation targeters: A Bayesian structural Analysis (joint with Tim Kam and Kirdan Lees) Journal of Money, Credit and Banking, Volume 41 Issue 4, Pages 583 - 618.
Download (Journal version / 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 structural macroeconomic policy objectives of three of the earliest explicit inflation targeters within the context of a small open economy dynamic stochastic general equilibrium model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective. 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. We also show that the resulting optimal policy rule responds to exchange rate movements, even in the case where the central banks do not explicitly care about exchange rate stabilization. This result is also corroborated by results from an alternative simple-rule characterization and estimation of central bank behavior. These last two findings point to the pitfalls of making inferences, from the level of ad hoc simple rules, about what central banks may care about.
Other publications:
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.
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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