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Latest Reserve Bank Discussion Papers

The Latest Reserve Bank of New Zealand Discussion Papers

28 July, 2006

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/

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DP2006/06

Family trusts: ownership, size, and their impact on measures of wealth and home ownership Phil Briggs

http://www.rbnz.govt.nz/research/discusspapers/dp06_06.pdf


DP2006/07

How costly is exchange rate stabilisation for an inflation targeter? The case of Australia Mark Crosby, Tim Kam and Kirdan Lees

http://www.rbnz.govt.nz/research/discusspapers/dp06_07.pdf

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DP2006/06

Family trusts: ownership, size, and their impact on measures of wealth and home ownership Phil Briggs

http://www.rbnz.govt.nz/research/discusspapers/dp06_06.pdf

Abstract

The number of family trusts has increased markedly in New Zealand over the last 15 years. This increase has implications for the measurement of household wealth and home ownership, since a significant proportion of dwellings are now held in family trusts. The Household Savings Survey (HSS), which was undertaken by Statistics New Zealand in 2001, collected data on household wealth, including the assets and liabilities of family trusts. HSS data is re-examined, with an emphasis on looking at the types of households that have family trusts, and also at the assets held in these trusts. The 2001 census, which included for the first time a question on whether a dwelling was held in a private trust, is also re-examined. It seems that many census respondents were confused by the census question, and results from the HSS suggest that the census total for trust dwellings is an undercount. HSS data, together with data on the number of tax returns from private trusts, is used to adjust the 2001 census tenure table. It was found that after adjustment for trust ownership, the home ownership rate still fell between 1991 and 2001. Furthermore, ownership rates fell for all age groups. Some of the difficulties that trusts pose when analysing surveys like the HSS at the unit record level are outlined, as are some suggestions for dealing with these difficulties.


DP2006/07

How costly is exchange rate stabilisation for an inflation targeter? The case of Australia Mark Crosby, Tim Kam and Kirdan Lees

http://www.rbnz.govt.nz/research/discusspapers/dp06_07.pdf

Abstract

This paper quantifies the costs of mitigating exchange rate volatility within the context of a flexible inflation targeting central bank. Within a standard linear-quadratic formulation of inflation targeting, we append a term that penalises deviations in the exchange rate to the central bank's loss function. For a simple forward-looking New Keynesian model, we show that the central bank can reduce volatility in the exchange rate relatively costlessly by aggressively responding to the real exchange rate. However, when we append correlated shocks to better match summary statistics of the Australian data we find that the costs associated with reducing exchange rate volatility are larger: output volatility increases substantially. Finally, we apply our method to a variant of a small backward-looking New Keynesian model of the Australian economy. Under this model, large increases in inflation and output volatility accrue if the central bank attempts to mitigate exchange rate volatility.

ENDS

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