 Modelling the business cycle of a small open economy: The Reserve Bank of New Zealand's DSGE modelGunes Kamber, Chris McDonald, Nick Sander and Konstantinos Theodoridis Economic Modelling, 2016, vol. 59, issue C, 546-569 Abstract: We describe the underlying structure of the new forecast and policy model used at the Reserve Bank of New Zealand and evaluate its ability to explain New Zealand data. Unlike other estimated small-open-economy DSGE models, we find that more than one third of the domestic GDP growth is driven by foreign shocks. The elevated contribution of foreign shocks to the domestic economy is driven by our decision to exclude mapping export demand to data on world GDP. Estimating our model without any foreign demand data limits the response of exports to the real exchange variations. This feature makes exports and, consequently, domestic GDP much more sensitive to variations to foreign demand and raises the importance of foreign shocks to the domestic business cycle. Furthermore, our analysis suggests that a model with “adaptive” expectations is preferred by the data relative to the version of the model with “rational” expectations. In that case, the model explains nominal variables using on average much smaller shocks. Keywords: DSGE models; Open economy; Monetary policy; Business cycle (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:59:y:2016:i:c:p:546-569 DOI: 10.1016/j.econmod.2016.08.013 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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