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Latest Reserve Bank Of NZ Discussion Papers


18 December, 2008

The following Discussion Papers have been released on the Reserve Bank's website. The discussion papers are available at


DP 2008/16

Inheritances and their impact on housing equity withdrawal By Phil Briggs

Housing equity withdrawal (HEW) was very high in New Zealand. In fact it was at unprecedented levels between 2004 and 2007. It has been postulated that a significant proportion of this equity withdrawal could be the result of inheritances, which would have increased in value as house prices rose over the period. This report looks at how much of recent HEW might be due to the sale of inherited dwellings. It briefly surveys earlier work on inheritances in New Zealand, and reviews various sources of data on inheritances. It then uses data from household wealth surveys, together with mortality data, to estimate the value of inheritances in 2001 and 2006. Estimates of the equity withdrawn from inherited houses are also derived. The results suggest that transactions related to inherited houses probably accounted for no more than about one-seventh of the change in net HEW between 2001 and 2006. Clearly other factors more active forms of equity withdrawal accounted for most of the change in HEW over the period.

DP 2008/17

Does natural rate variation matter? Evidence from New Zealand Michael Kirker

Natural rates are an important concept within the new Keynesian models often used for monetary policy advice. However, many of these models rely on demeaned interest rate and inflation data. Thus, they implicitly impose the strict assumption that the natural rates of these series are constant. Using New Zealand data and a small open-economy new Keynesian model with time-varying parameters, we estimate the natural real rate of interest, inflation target, potential output, and neutral real exchange rate. We find that the model estimates of the natural real rate of interest and neutral exchange rate display noticeable time variation and considerable uncertainty, while the inflation target has been relatively stable over the sample period. We also compare the results of this model to a model with time-invariant natural rates. The comparison reveals the data prefers the fit of the time varying model. It also shows that allowing the natural rates to vary over time has implications for the persistence parameters and impulse responses of the model.

DP 2008/18

Combining Forecast Densities from VARs and Uncertain Instabilities Anne Sofie Jore, James Mitchell and Shaun Vahey

Recursive-weight forecast combination is often found to an ineffective method of improving point forecast accuracy in the presence of uncertain instabilities.

We examine the effectiveness of this strategy for forecast densities using (many) VARs and ARs of output, prices and interest rates. Our proposed recursive-weights density combination strategy, based on the recursive logarithmic score of the forecast densities, produces accurate predictive densities by giving substantial weight to models that allow for structural breaks. In contrast, equal-weight combinations produce poor real-time US forecast densities for Great Moderation data.

DP 2008/19 The evolution of the Forecasting and Policy System (FPS) at the Reserve Bank of New Zealand

Felix Delbrück, Ashley Dunstan, David Hargreaves, Ashley Lienert, Hamish Pepper and Cath Sleeman

The Forecasting and Policy System model (FPS) has been a very useful tool for forecasting and communication at the Reserve Bank of New Zealand. In part, its success has been due to pragmatic use, and the evolution of the model to reflect changing views of the New Zealand economy. However, as economic theory and modelling technology have developed, it is likely that the next core model for producing projections at the Reserve Bank will be a DSGE model. This note looks forward to that possibility with two aims in mind. First, the paper discusses how FPS has been used at the Reserve Bank over the last 11 years. Second, we describe how the structure of FPS has changed over time.


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