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SDS-FPS: a small demand-side version of the Forecasting and Policy System core model

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Abstract

This paper describes the development of SDS-FPS, which is a small demand-side model calibrated to match some of the dynamic properties of the Reserve Bank's Forecasting and Policy System (FPS) core model. SDS-FPS is capable of matching the dynamic properties of FPS for a wide range of disturbances, despite lacking relative prices, having no explicit supply side, and having the entire demand side described by a single IS equation. The calibration of SDS-FPS has also provided some insights into the features of FPS that cannot be replicated in a small demand-side model. The size of SDS-FPS makes its use feasible in situations where the use of FPS may not be practical. For example, stochastic simulation experiments can be performed much faster with SDS-FPS than with FPS, making more complex experiments computationally feasible.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/1999/g99_10.pdf
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Bibliographic Info

Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number G99/10.

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Length: 28p
Date of creation: Dec 1999
Date of revision:
Handle: RePEc:nzb:nzbdps:1999/10

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References

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  1. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
  2. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  3. Paul Conway & Aaron Drew & Ben Hunt & Alasdair Scott, 1998. "Exchange rate effects and inflation targeting in a small open economy: a stochastic analysis using FPS," Reserve Bank of New Zealand Discussion Paper Series G99/4, Reserve Bank of New Zealand.
  4. Richard Dennis, 1997. "A measure of monetary conditions," Reserve Bank of New Zealand Discussion Paper Series G97/1, Reserve Bank of New Zealand.
  5. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  6. Watson, Mark W, 1993. "Measures of Fit for Calibrated Models," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1011-41, December.
  7. Robert G. King, 1995. "Quantitative theory and econometrics," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 53-105.
  8. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  9. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: stochastic simulations of the core model," Reserve Bank of New Zealand Discussion Paper Series G98/6, Reserve Bank of New Zealand.
  10. Aaron Drew & Benjamin Hunt, 1999. "Efficient simple policy rules and the implications of potential output uncertainty," Reserve Bank of New Zealand Discussion Paper Series G99/5, Reserve Bank of New Zealand.
  11. Paul Conway & Ben Hunt, 1997. "Estimating potential output: a semi-structural approach," Reserve Bank of New Zealand Discussion Paper Series G97/9, Reserve Bank of New Zealand.
  12. Cooley, Thomas F, 1997. "Calibrated Models," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 55-69, Autumn.
  13. Gordon de Brouwer & Luci Ellis, 1998. "Forward-looking Behaviour and Credibility: Some Evidence and Implications for Policy," RBA Research Discussion Papers rdp9803, Reserve Bank of Australia.
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Cited by:
  1. Vittorio Corbo & José Tessada, 2002. "Growth and Adjustment in Chile: A Look at the 1990s," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Economic Growth: Sources, Trends, and Cycles, edition 1, volume 6, chapter 14, pages 465-522 Central Bank of Chile.
  2. John C. Robertson, 2000. "Central bank forecasting: an international comparison," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 21-32.
  3. Victor Gaiduch & Benjamin Hunt, 2000. "Inflation targeting under potential output uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2000/08, Reserve Bank of New Zealand.

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