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The Forecasting and Policy System: stochastic simulations of the core model

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Uncertainty in applied macroeconomic policy analysis arises from three distinct sources. The first, often referred to as model uncertainty, arises because the models used for policy analysis are simple abstractions of the complex behavioural interactions that occur in an economy. The second source, denoted shock uncertainty, arises from unforeseen events that the analysis cannot explicitly factor in ex ante. Finally, starting-point uncertainty reflects the fact that given data lags and revisions, often it is difficult to assess the current state of the economy. This paper discusses the approach the Reserve Bank has taken to enable its Forecasting and Policy System (FPS) to quantify the implications that the typical level of shock uncertainty might be expected have on the analysis of alternative policy actions designed to achieve the objectives of monetary policy.

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  • 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.
  • Handle: RePEc:nzb:nzbdps:1998/06
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    Cited by:

    1. Aaron Drew & L Christopher Plantier, 2000. "Interest rate smoothing in New Zealand and other dollar bloc countries," Reserve Bank of New Zealand Discussion Paper Series DP2000/10, Reserve Bank of New Zealand.
    2. David Hargreaves, 1999. "SDS-FPS: a small demand-side version of the Forecasting and Policy System core model," Reserve Bank of New Zealand Discussion Paper Series G99/10, Reserve Bank of New Zealand.
    3. Ben Hunt & Adrian Orr, 1999. "Inter-forecast monetary policy implementation: responding to unexpected exchange rate movements," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
    4. Héctor Bravo L. & Carlos García T., 2002. "Measuring Monetary Policy and Pass-Through in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(3), pages 5-28, December.
    5. JACQUINOT Pascal & MIHOUBI Ferhat, "undated". "The Optimality of the Taylor Rule in MARCOS: Some Deterministic and Stochastic Experiments," EcoMod2003 330700073, EcoMod.
    6. Drew, Aaron & Hunt, Benjamin, 2000. "Efficient simple policy rules and the implications of potential output uncertainty," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 143-160.
    7. Evan C Tanner, 2013. "Fiscal Sustainability; A 21st Century Guide for the Perplexed," IMF Working Papers 13/89, International Monetary Fund.
    8. 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.
    9. 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.
    10. Ferhat MIHOUBI & Pascal JACQUINOT, 2004. "The Optimality of the US and Euro Area Taylor Rule," Computing in Economics and Finance 2004 220, Society for Computational Economics.
    11. Aaron Drew & Adrian Orr, 1999. "The Reserve Bank's role in the recent business cycle: actions and evolutions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
    12. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: preparing economic projections," Reserve Bank of New Zealand Discussion Paper Series G98/7, Reserve Bank of New Zealand.
    13. Mike Frith & Aaron Drew, 1998. "Forecasting at the Reserve Bank of New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, December.
    14. John C. Robertson, 2000. "Central bank forecasting: an international comparison," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 21-32.
    15. L Christopher Plantier & Dean Scrimgeour, 2002. "Estimating a Taylor Rule for New Zealand with a time-varying neutral real rate," Reserve Bank of New Zealand Discussion Paper Series DP2002/06, Reserve Bank of New Zealand.
    16. Drew, Aaron & Hall, Viv B. & McDermott, C. John & Clair, Robert St., 2004. "Would adopting the Australian dollar provide superior monetary policy in New Zealand?," Economic Modelling, Elsevier, vol. 21(6), pages 949-964, December.
    17. Victor Gaiduch & Benjamin L Hunt, 2000. "Inflation Targeting Under Potential Output Uncertainty," IMF Working Papers 00/158, International Monetary Fund.
    18. Yuong Ha, 2000. "Uncertainty about the length of the monetary policy transmission lag: implications for monetary policy," Reserve Bank of New Zealand Discussion Paper Series DP2000/01, Reserve Bank of New Zealand.
    19. James Twaddle & David Hargreaves & Tim Hampton, 2006. "Other stabilisation objectives within an inflation targeting regime: Some stochastic simulation experiments," Reserve Bank of New Zealand Discussion Paper Series DP2006/04, Reserve Bank of New Zealand.
    20. Ben Hunt, 1999. "Inter-forecast monetary policy implementation: fixed-instrument versus MCI-based strategies," Reserve Bank of New Zealand Discussion Paper Series G99/1, Reserve Bank of New Zealand.

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