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A Small New Keynesian Model of the New Zealand economy

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Abstract
This paper investigate whether a small open economy DSGE-based New Keynesian model can provide a reasonable description of key features of the New Zealand economy, in particular the transmission mechanism of monetary policy. The main objective is to design a simple, compact, and transparent tool for basic policy simulations. The structure of the model is largely motivated by recent developments in the area of DSGE modelling. Combining prior information and the historical data using Bayesian simulation techniques, we arrive at a set of parameters that largely reflect New Zealand's experience over the stable inflation-targeting period. The resultant model can be used to simulate monetary policy paths and help analyze the robustness of policy conclusions to model uncertainty.

Suggested Citation

  • Philip Liu, 2006. "A Small New Keynesian Model of the New Zealand economy," Reserve Bank of New Zealand Discussion Paper Series DP2006/03, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:2006/03
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    Cited by:

    1. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 609-681.
    2. Adnan Haider Bukhari & Safdar Ullah Khan, 2008. "A Small Open Economy DSGE Model for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 963-1008.
    3. Julien Albertini & Güneş Kamber & Michael Kirker, 2012. "Estimated Small Open Economy Model With Frictional Unemployment," Pacific Economic Review, Wiley Blackwell, vol. 17(2), pages 326-353, May.
    4. Olayeni, Olaolu Richard, 2009. "A small open economy model for Nigeria: a BVAR-DSGE approach," MPRA Paper 16180, University Library of Munich, Germany.
    5. Karagiannides, Gabriel, 2018. "Exploring the Determinacy Dynamics in an Open Economy," MPRA Paper 89268, University Library of Munich, Germany.
    6. Juan Pablo Medina & Anella Munro & Claudio Soto, 2008. "What Drives the Current Account in Comodity Exporting Countries? The Cases of Chile and New Zealand," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.),Current Account and External Financing, edition 1, volume 12, chapter 10, pages 369-434, Central Bank of Chile.
    7. Agénor, Pierre-Richard & Bayraktar, Nihal, 2010. "Contracting models of the Phillips curve empirical estimates for middle-income countries," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 555-570, June.
    8. Drissi, Ramzi & Ghassan, Hassan Belkacem, 2018. "Sticky Price versus Sticky Information Price: Empirical Evidence in the New Keynesian Setting," MPRA Paper 95174, University Library of Munich, Germany, revised Apr 2019.
    9. Ms. Keiko Honjo & Mr. Benjamin L Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers 2006/262, International Monetary Fund.
    10. King Yoong Lim & Pengfei Jia, 2019. "Police spending and economic stabilization in a monetary economy with crime and differential human capital," NBS Discussion Papers in Economics 2019/02, Economics, Nottingham Business School, Nottingham Trent University.
    11. Matheson, Troy, 2010. "Assessing the fit of small open economy DSGEs," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 906-920, September.
    12. Pierre-Richard Agénor & Koray Alper, 2012. "Monetary shocks and central bank liquidity with credit market imperfections," Oxford Economic Papers, Oxford University Press, vol. 64(3), pages 563-591, July.
    13. Pengfei Jia & King Yoong Lim, 2021. "The stabilization role of police spending in a neo‐Keynesian economy with credit market imperfections," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(1), pages 103-125, February.
    14. Hossein Abbasinejad & Hossein Tavakolian & Sayed Kazem Husseini, 2018. "The Effects of Monetary Policy on Output and Inflation in Afghanistan: A Dynamic Stochastic General Equilibrium Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 22(2), pages 375-408, Spring.
    15. Ara Stepanyan & Ms. Era Dabla-Norris & Ashot Anatolii Mkrtchyan, 2009. "A New Keynesian Model of the Armenian Economy," IMF Working Papers 2009/066, International Monetary Fund.
    16. Leighton Vaughan Williams & Chunping Liu & Hannah Gerrard, 2019. "How well do Elo-based ratings predict professional tennis matches?," NBS Discussion Papers in Economics 2019/03, Economics, Nottingham Business School, Nottingham Trent University.
    17. Thorvardur Tjörvi Ólafsson, 2006. "The New Keynesian Phillips Curve: In Search of Improvements and Adaptation to the Open Economy," Economics wp31_tjorvi, Department of Economics, Central bank of Iceland.
    18. SENBETA, Sisay Regassa, 2013. "Informality and macroeconomic fluctuations: A small open economy New Keynesian DSGE model with dual labour markets," Working Papers 2013002, University of Antwerp, Faculty of Business and Economics.
    19. Pedro Lutz Ramos & Marcelo Savino Portugal, 2016. "Choques Antecipados De Política Monetária, Forward Guidance E Políticas De Estabilização Macroeconômicas," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 043, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    20. Gallic, Ewen & Vermandel, Gauthier, 2017. "Weather Shocks, Climate Change and Business Cycles," MPRA Paper 81230, University Library of Munich, Germany.
    21. Arief Ramayandi, 2008. "Simple Model for a Small Open Economy: An Application to the ASEAN-5 Countries," Working Papers in Economics and Development Studies (WoPEDS) 200801, Department of Economics, Padjadjaran University, revised May 2008.
    22. Marjan Petreski, 2009. "A Critique On Inflation Targeting," Journal Articles, Center For Economic Analyses, pages 11-24, December.
    23. Stepanyan Ara & Tevosyan Anahit, 2008. "A small open economy model with remittances: Evidence from Armenian economy," EERC Working Paper Series 08/06e, EERC Research Network, Russia and CIS.
    24. Zams, Bastian Muzbar, 2021. "Frictions and empirical fit in a DSGE model for Indonesia," Economic Modelling, Elsevier, vol. 99(C).

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    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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