We estimate underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters - Australia, Canada and New Zealand - within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy...

This paper quantifies the costs of mitigating exchange rate volatility within the context of a flexible inflation targeting central bank. Within a standard linearquadratic formulation of inflation targeting, we append a term that penalises deviations in the exchange rate to the central bank’s...

Typical New Keynesian open economy models suggest a limited response to the exchange rate. This paper examines the role of the open economy in determining robust rules when the central bank fears various model misspecification errors. The paper calibrates a hybrid New Keynesian model to broadly...

This paper tests the present value model of the current account on New Zealand data. There is some evidence in favour of the PVM – the current account tests as stationary and Granger-causes changes in national net income. However, the cross-equation restrictions implied by the model are...

We evaluate the performance of an open economy DSGE-VAR model for New Zealand along both forecasting and policy dimensions. We show that forecasts from a DSGE-VAR and a 'vanilla' DSGE model are competitive with, and in some dimensions superior to, the Reserve Bank of New Zealand's official...

We describe a simple extension of the Monacelli (2005) small open economy model that incorporates a non-tradable good, habit persistence and price indexation. The empirical fit of eight different specifications of this model is then tested in a Bayesian framework using data for three small open...

Traditional vector autoregressions derive impulse responses using iterative techniques that may compound specification errors. Local projection techniques are robust to this problem, and Monte Carlo evidence suggests they provide reliable estimates of the true impulse responses. We use local...

We assess the global macroeconomic implications of different strategies of official reserve management by developing a large scale new-Keynesian dynamic general equilibrium model of the world economy, calibrated on the euro area, the United States, China, Japan and the rest of the world. An...

I develop a structural general equilibrium model and estimate it for New Zealand using Bayesian techniques. The estimated model considers a monetary policy regime where the central bank targets overall inflation but is also concerned about output, exchange rate movements, and interest rate...

We investigate the implications of cross-country heterogeneity within the euro area for the design of optimal monetary policy. We build an optimizing-based multi-country model (MCM) describing the euro area in which differences between structural parameters across countries are allowed. Using...