Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/205514
Authors: 
Buckle, Robert A
Kim, Kunhong
McLellan, Nathan
Year of Publication: 
2003
Series/Report no.: 
New Zealand Treasury Working Paper No. 03/09
Publisher: 
New Zealand Government, The Treasury, Wellington
Abstract: 
This paper uses the open economy structural VAR model developed in Buckle, Kim, Kirkham, McLellan and Sharma (2002) to evaluate the impact of monetary policy on New Zealand business cycles and inflation variability and the output/ inflation variance trade-off. The model includes a forward- looking Taylor Rule to identify monetary policy and the impact of monetary policy is evaluated by deriving a monetary policy index using a procedure suggested by Dungey and Pagan (2000). Monetary policy has generally been counter-cyclical, thereby reducing business cycles and inflation variability. Exceptions are in 1993 when monetary policy accentuated the business cycle upswing and in 1998 when monetary policy accentuated the recession, although its impact in 1998 was small relative to the impact of adverse climatic conditions. During the initial years of inflation targeting monetary policy tended to simultaneously reduce inflation and output variability. From 1996 to 2001 monetary policy was less effective in reducing inflation and output variability. This latter period included a brief experiment with a Monetary Conditions Index, the Asian crisis and a large adverse domestic climate shock.
Subjects: 
Monetary policy
inflation targeting
business cycles
open economy
structural VAR models
inflation
interest rates
exchange rates
climate
international linkages
JEL: 
C22
E32
E52
E58
E65
F41
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Working Paper

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