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Estimated Small Open Economy Model With Frictional Unemployment

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  • JULIEN ALBERTINI
  • GÜNEŞ KAMBER
  • MICHAEL KIRKER

Abstract

This paper investigates labour market dynamics in New Zealand by estimating a structural small open economy model enriched with standard search and matching frictions in the labour market. We show that the model its the business cycle features of key macroeconomic variables reasonably well and provides an appealing monetary transmission mechanism. We then extend our analysis to understand the driving forces behind labour market variables. Our findings suggest that the bulk of variation in labour market variables is solely explained by disturbances pertaining to the labour market.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 17 (2012)
Issue (Month): 2 (05)
Pages: 326-353

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Handle: RePEc:bla:pacecr:v:17:y:2012:i:2:p:326-353

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References

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  1. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  2. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  3. Troy Matheson, 2006. "Assessing the fit of small open economy DSGEs," Reserve Bank of New Zealand Discussion Paper Series DP2006/11, Reserve Bank of New Zealand.
  4. Alejandro Justiniano & Bruce Preston, 2006. "Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances?," 2006 Meeting Papers 479, Society for Economic Dynamics.
  5. Kai Christoffel & Tobias Linzert, 2010. "The Role of Real Wage Rigidity and Labor Market Frictions for Inflation Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1435-1446, October.
  6. Morten O. Ravn & Saverio Simonelli, 2007. "Labor Market Dynamics and the Business Cycle: Structural Evidence for the United States," Economics Working Papers ECO2007/13, European University Institute.
  7. Yashiv, Eran, 2006. "Evaluating the performance of the search and matching model," European Economic Review, Elsevier, vol. 50(4), pages 909-936, May.
  8. Kirdan Lees & Troy Matheson & Christie Smith, 2007. "Open Economy Dsge-Var Forecasting And Policy Analysis: Head To Head With The Rbnz Published Forecasts," CAMA Working Papers 2007-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Timothy Kam & Kirdan Lees & Philip Liu, 2009. "Uncovering the Hit List for Small Inflation Targeters: A Bayesian Structural Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 583-618, 06.
  10. Kai Christoffel & Keith Kuester & Tobias Linzert, 2009. "The role of labor markets for Euro area monetary policy," Working Papers 09-1, Federal Reserve Bank of Philadelphia.
  11. Alejandro Justiniano & Bruce Preston, 2009. "Monetary policy and uncertainty in an empirical small open economy model," Working Paper Series WP-09-21, Federal Reserve Bank of Chicago.
  12. Christoffel, Kai & Kuester, Keith, 2008. "Resuscitating the wage channel in models with unemployment fluctuations," Working Paper Series 0923, European Central Bank.
  13. Kirdan Lees, 2009. "Introducing KITT: The Reserve Bank of New Zealand new DSGE model for forecasting and policy design," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-20, June.
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  15. Lewis Evans & Arthur Grimes & Bryce Wilkinson, 1996. "Economic Reform in New Zealand 1984-95: The Pursuit of Efficiency," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1856-1902, December.
  16. Kamber, Gunes & Millard, Stephen, 2010. "Using estimated models to assess nominal and real rigidities in the United Kingdom," Bank of England working papers 396, Bank of England.
  17. Campolmi, Alessia & Faia, Ester, 2011. "Labor market institutions and inflation volatility in the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 793-812, May.
  18. Michael Kirker, 2008. "Does natural rate variation matter? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/17, Reserve Bank of New Zealand.
  19. Capie,Forrest, 2010. "The Bank of England," Cambridge Books, Cambridge University Press, number 9780521192828, April.
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  21. Jean-Olivier Hairault, 2002. "Labor-Market Search and International Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 535-558, July.
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Cited by:
  1. Kónya, István & Jakab M., Zoltán, 2012. "Munkapiaci súrlódások DSGE modellekben
    [Labour market frictions in DSGE models]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 933-962.

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