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The Forecasting and Policy System: preparing economic projections

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This paper outlines how the Reserve Bank of New Zealand's Forecasting and Policy System (FPS) is used to prepare the quarterly economic projections. In addition to a very brief overview of the system, the paper focuses on four key issues. First, the current methodology for incorporating a time-varying equilibrium path for the economy is presented. Second, the process for building up the central scenario through the application of judgement is outlined. Third, the use of alternative scenarios for testing the implications of key assumptions embodied in the central scenario is discussed. Finally, the technique employed to examine the implications that unforseen shocks have for the projections is discussed.

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  • 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.
  • Handle: RePEc:nzb:nzbdps:1998/07
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    1. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    3. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-247, July-Sept.
    4. Paul Conway & Ben Hunt, 1998. "Productivity growth in New Zealand: economic reform and the convergence hypothesis," Reserve Bank of New Zealand Discussion Paper Series G98/2, Reserve Bank of New Zealand.
    5. 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.
    6. Alain Guay & Pierre Saint-Amant, 2005. "Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?," Annals of Economics and Statistics, GENES, issue 77, pages 133-155.
    7. James Breece & Vincenzo Cassino, 1998. "The Forecasting and Policy System: demand-side satellite models," Reserve Bank of New Zealand Discussion Paper Series G98/3, Reserve Bank of New Zealand.
    8. 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.
    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. Peter A. Tinsley, 1993. "Fitting both data and theories: polynomial adjustment costs and error- correction decision rules," Finance and Economics Discussion Series 93-21, Board of Governors of the Federal Reserve System (U.S.).
    11. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    12. 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.
    13. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-293, June.
    14. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
    15. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
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    Cited by:

    1. Troy D. Matheson, 2006. "Factor Model Forecasts for New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    2. Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 277-316.
    3. John B. Taylor, 2002. "The Monetary Transmission Mechanism and the Evaluation of Monetary Policy Rules," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 2, pages 021-046 Central Bank of Chile.
    4. Fujiwara, Ippei & Hara, Naoko & Hirose, Yasuo & Teranishi, Yuki, 2005. "The Japanese Economic Model (JEM)," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(2), pages 61-142, May.
    5. Peter Mikek, 2004. "Inflation targeting and switch of fiscal regime in New Zealand," Applied Economics, Taylor & Francis Journals, vol. 36(2), pages 165-172.
    6. Aaron Drew, 2002. "Lessons from Inflation Targeting in New Zealand," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 12, pages 501-538 Central Bank of Chile.
    7. 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.
    8. Berlemann, Michael, 2001. "Forecasting inflation via electronic markets: Results from a prototype market," Dresden Discussion Paper Series in Economics 06/01, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    9. Taylor, John B, 2000. "Alternative Views of the Monetary Transmission Mechanism: What Difference Do They Make for Monetary Policy?," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 60-73, Winter.
    10. 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.
    11. 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.
    12. Ippei Fujiwara & Naoko Hara & Naohisa Hirakata & Shinichiro Watanabe & Kentaro Yoshimura, 2005. "Monetary Policy in a Liquidity Trap: What Have We Learned, and to What End?," International Finance, Wiley Blackwell, vol. 8(3), pages 471-508, December.
    13. Olivier Basdevant & David Hargreaves, 2003. "Modelling structural change: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/03, Reserve Bank of New Zealand.
    14. 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.

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