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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, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series, Federal Reserve Bank of Chicago WP-01-08, Federal Reserve Bank of Chicago.
  2. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research, National Bank of Belgium 35, National Bank of Belgium.
  3. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based-Stabilizations," NBER Working Papers 7862, National Bureau of Economic Research, Inc.
  4. 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, New Zealand Treasury 03/25, New Zealand Treasury.
  5. Uhlig, H., 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper, Tilburg University, Center for Economic Research 1995-97, Tilburg University, Center for Economic Research.
  6. John Geweke, 1999. "Using Simulation Methods for Bayesian Econometric Models," Computing in Economics and Finance 1999, Society for Computational Economics 832, Society for Computational Economics.
  7. Kirdan Lees, 2003. "The stabilisation problem: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2003/08, Reserve Bank of New Zealand.
  8. hafedh bouakez & emanuela cardia, 2003. "Habit Formation and the Persistence of Monetary Shocks," Computing in Economics and Finance 2003, Society for Computational Economics 72, Society for Computational Economics.
  9. Thomas Lubik & Frank Schorfheide, 2003. "Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 505, The Johns Hopkins University,Department of Economics.
  10. 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, Econometric Society 594, Econometric Society.
  11. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 521, The Johns Hopkins University,Department of Economics.
  12. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series, European Central Bank 0171, European Central Bank.
  13. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 248-252, May.
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Cited by:
  1. Juan Pablo Medina & Anella Munro & Claudio Soto, 2008. "What Drives the Current Account in Comodity Exporting Countries? The Cases of Chile and New Zealand," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmid (ed.), Current Account and External Financing, edition 1, volume 12, chapter 10, pages 369-434 Central Bank of Chile.
  2. SENBETA, Sisay Regassa, 2013. "Informality and macroeconomic fluctuations: A small open economy New Keynesian DSGE model with dual labour markets," Working Papers, University of Antwerp, Faculty of Applied Economics 2013002, University of Antwerp, Faculty of Applied Economics.
  3. Olayeni, Olaolu Richard, 2009. "A small open economy model for Nigeria: a BVAR-DSGE approach," MPRA Paper 16180, University Library of Munich, Germany.
  4. Matheson, Troy, 2010. "Assessing the fit of small open economy DSGEs," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(3), pages 906-920, September.
  5. Keiko Honjo & Ben Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers, International Monetary Fund 06/262, International Monetary Fund.

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