When a central bank operates with multiple, non-nested models of the economy, generally no single policy rule will be optimal across within alternate models. In this context, Levin and Williams (2003) introduce the notion of fault tolerance of policy rules, that is, the performance of policy...

In this final edition of the Reserve Bank Bulletin for 2009, we present a range of articles about the New Zealand economy, spanning a number of the Reserve Bank’s functions.

The 2002 Policy Targets Agreement (PTA) between the government and central bank of New Zealand asks the central bank to target inflation "over the medium term" rather than over an annual target. Delegating such a medium term objective to the central bank shifts inflation targeting towards a...

For policymakers, thinking about best practice monetary policy means thinking about uncertainty. Open economy monetary policymakers face an additional source of uncertainty – exchange rate dynamics. This paper identifies policy rules robust to the open economy inflation targeters face in...

The Reserve Bank of New Zealand has developed a new core macroeconomic model to replace the existing FPS (Forecasting and Policy System) model. KITT (Kiwi Inflation Targeting Technology), the new model, advances our modelling towards the frontier in terms of both theory and empirics. KITT...

We utilise prior information from a simple RBC model to improve ARMA forecasts of post-war US GDP. We develop three alternative ARMA forecasting processes that use varying degrees of information from the Campbell (1994) flexible labour model. Directly calibrating the model produces poor...

Central bank policymakers often cast judgement about macroeconomic forecasts in reduced form terms, basing this on off-model information that is not easily mapped to a structural DSGE framework. We show how to compute forecasts conditioned on policymaker judgement that are the most likely...