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A Small New Keynesian Model of the New Zealand economy

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Abstract

This paper investigate whether a small open economy DSGE-based New Keynesian model can provide 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.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2006/dp06_03.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 DP2006/03.

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Length: 38 p.
Date of creation: May 2006
Date of revision:
Handle: RePEc:nzb:nzbdps:2006/03

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  2. Thomas Lubik & Frank Schorfheide, 2003. "Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation," Economics Working Paper Archive 505, The Johns Hopkins University,Department of Economics.
  3. Bouakez, Hafedh & Cardia, Emanuela & Ruge-Murcia, Francisco J., 2005. "Habit formation and the persistence of monetary shocks," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1073-1088, September.
  4. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  5. Kam Leong Szeto & Paul Gardiner & Richard Gray & David Hargreaves, 2003. "A Comparison of the NZTM and FPS Models of the New Zealand Economy," Treasury Working Paper Series 03/25, New Zealand Treasury.
  6. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
  7. Nathan McLellan & Robert A Buckle & Kunhong Kim, 2004. "The impact of monetary policy on New Zealand business cycles and inflation variability," Econometric Society 2004 Far Eastern Meetings 594, Econometric Society.
  8. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
  9. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series 0171, European Central Bank.
  10. Harald Uhlig, 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper / Institute for Empirical Macroeconomics 101, Federal Reserve Bank of Minneapolis.
  11. John Geweke, 1999. "Using Simulation Methods for Bayesian Econometric Models," Computing in Economics and Finance 1999 832, Society for Computational Economics.
  12. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive 521, The Johns Hopkins University,Department of Economics.
  13. Kirdan Lees, 2003. "The stabilisation problem: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/08, Reserve Bank of New Zealand.
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Cited by:
  1. Matheson, Troy, 2010. "Assessing the fit of small open economy DSGEs," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 906-920, September.
  2. Juan Pablo Medina & Anella Munro & Claudio Soto, 2007. "What Drives the Current Account in Commodity Exporting Countries? The Cases of Chile and New Zealand," Working Papers Central Bank of Chile 447, Central Bank of Chile.
  3. SENBETA, Sisay Regassa, 2013. "Informality and macroeconomic fluctuations: A small open economy New Keynesian DSGE model with dual labour markets," Working Papers 2013002, University of Antwerp, Faculty of Applied Economics.
  4. Olayeni, Olaolu Richard, 2009. "A small open economy model for Nigeria: a BVAR-DSGE approach," MPRA Paper 16180, University Library of Munich, Germany.
  5. Keiko Honjo & Ben Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers 06/262, International Monetary Fund.

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