Latest RBNZ Discussion Papers
The Latest Reserve Bank Of New Zealand Discussion Papers
16 May, 2008
The following Discussion Papers have been released on the Reserve Bank's website. The discussion papers are available at http://www.rbnz.govt.nz/research/discusspapers/
Heterogenous expectations, adaptive learning, and forward looking monetary policy Martin Fukac http://www.rbnz.govt.nz/research/discusspapers/dp08_07.pdf
A macro stress testing model with feedback effects Mizuho Kida http://www.rbnz.govt.nz/research/discusspapers/dp08_08.pdf
Analysing shock transmission in a data rich environment: A large BVAR for New Zealand Chris Bloor and Troy Matheson http://www.rbnz.govt.nz/research/discusspapers/dp08_09.pdf
Heterogenous expectations, adaptive learning, and forward looking monetary policy
In this paper, I examine the role of monetary policy in a heterogeneous expectations environment. I use a New Keynesian business cycle model as the experiment laboratory. I assume that the central bank and private economic agents (households and producing firms) have imperfect and heterogeneous information about the economy, and as a consequence, they disagree in their views on its future development. I facilitate the heterogeneous environment by assuming that all agents learn adaptively. Measured by the central bank's expected loss, the two major findings are - (i) policy that is efficient under homogeneous expectations is not efficient under heterogeneous expectations; (ii) in the short and medium run, policy that is excessively responsive to inflation increases inflation and output volatility, but in the long run such policy lowers economic volatility.
A macro stress testing model with feedback effects
Stress testing is a tool to analyse the resilience of a financial system under extreme shocks. In contrast to single-bank stress testing models, macro stress testing models attempt to analyse risk for the system as a whole by taking into account feedback - i.e. the transmission of risks - within the system or between the financial system and the real economy. This paper develops a simple model of macro stress testing, incorporating two types of feedback: one between credit and interest rate risks and another between the banking system and the real economy. The model is tested using hypothetical banking sector data. The results from the exercise highlight the importance of incorporating feedback effects for the assessment of total risks to the system, and of recognising more than one type of feedback effect in a model for a robust assessment of risks to financial stability.
Analysing shock transmission in a data rich environment: A large BVAR for New Zealand
Chris Bloor and Troy Matheson http://www.rbnz.govt.nz/research/discusspapers/dp08_09.pdf
We analyse a large Bayesian Vector Autoregression (BVAR) containing almost one hundred New Zealand macroeconomic time series. Methods for allowing multiple blocks of equations with block-specific Bayesian priors are described, and forecasting results show that our model compares favourably to a range of other time series models. Examining the impulse responses to a monetary policy shock and to two less conventional shocks - net migration and the climate - we highlight the usefulness of the large BVAR in analysing shock transmission.