New Discussion Papers - 9 Aug 2012
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/
Matching efficiency and business cycle fluctuations (PDF 585KB)
By Francesco Furlanetto and Nicolas Groshenny
A large decline in the efficiency of the US labour market in matching unemployed workers and vacant jobs has been documented during the Great Recession. We use a simple New Keynesian model with search and matching frictions in the labour market to study the macroeconomic implications of matching efficiency shocks. We show that the propagation of these disturbances and their importance for business cycle fluctuations depend crucially on the form of hiring costs and on the presence of nominal rigidities.
The macroeconomic effects of a stable funding requirement (PDF 1.4MB)
By Chris Bloor, Rebecca Craigie and Anella Munro
This paper examines the macroeconomic effects of a bank stable funding requirement of the type proposed under Basel III and introduced in New Zealand in 2010. The paper sets out a small open economy model incorporating a banking sector funded by retail deposits and short- and long-term wholesale borrowing, with a tractable setup for multi-period debt that allows hedging of benchmark interest rate risk. A stable funding requirement increases rollover in long-term funding markets, despite lower aggregate rollover. Greater exposure to long-term funding markets attenuates credit expansion if funding costs rise more steeply with volumes in less-liquid long-term markets. However, it amplifies the pro-cyclical effects of fluctuations in funding spreads because variations in long-term spreads are larger and are carried for the duration of the funding (cannot be hedged). Such amplification increases in the level of the requirement and the level of net debt. We explore approaches to moderating adverse macroeconomic outcomes.
Measuring the stance of monetary policy in zero lower bound environments (478KB)
By Leo Krippner
I propose a simple framework that quantities the stance of monetary policy as a “shadow short rate” when interest rates are near the zero lower bound. The framework is shown to be a close approximation to the Black (1995) framework for modelling the term structure subject to a zero-lower-bound constraint. I demonstrate my framework with a one-factor model applied to Japanese data, including an intuitive economic interpretation of the results, and also discuss the extension to multiple factors.