Recent Reserve Bank discussion papers (with abstracts)
Reserve Bank discussion and research papers present the detailed scholarly research of staff economists and visiting scholars. The papers are published throughout the year mainly for academic and professional economists.
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Papers for 2011
DP 2011/08
Foreign acquisition and the performance of New Zealand firms (PDF 486KB)
This paper examines the firm-level determinants of foreign acquisitions of New Zealand companies, and the consequences for both the purchased firms and the workers within those firms. We follow a combined propensity score matching and difference-in-differences approach to identify and address endogenous selection of acquisition targets. The results suggest that foreign firms tend to target high-performing New Zealand companies. Acquired firms then exhibit higher growth in average wages and output, relative to similar domestic firms, but do not appear in general to increase their productivity or capital intensity. We find no evidence of differential survival rates for recently acquired foreign firms.
DP 2011/07
Forecasting house price inflation: a model combination approach (PDF 413KB)
In this paper we use a range of statistical models to forecast New Zealand house price inflation. We address the issue of model uncertainty by combining forecasts using weights based on out-of-sample forecast performance. We consider how the combined forecast for house prices performs relative to both the individual model forecasts and the Reserve Bank of New Zealand's house price forecasts. We find that the combination forecast is on par with the best of the models for most forecast horizons, and has produced lower root mean squared forecast errors than the Reserve Bank's forecasts.
DP 2011/06
Cyclical changes in firm volatility (PDF 296KB)
We estimate changes in the volatility of firm-level sales, earnings and employment growth of US firms. Our method differs from existing measures for firm-level sales and employment volatility in that it not only captures longer-run changes in volatility, but also measures cyclical changes in firm volatility. We detect substantial cyclical variation in firm-specific volatility around trend. Firm-specific volatility was low in the early 1990s, rose in the mid- and late-1990s, and was high around 2000. Our results are consistent with the hypothesis, deduced from models with financial frictions, that rising idiosyncratic volatility before 2001 contributed to the coincident rise in the external finance premium and to the 2001 recession. Endogenous pricing models imply that price adjustment is less frequent, and disinflation more costly, when firm-specific volatility is low. Consistent with endogenous pricing models, we find that the output cost of disinflation was three times larger in the early 1990s than in the early 2000s.
DP 2011/05
Time-varying returns, intertemporal substitution and cyclical variation in consumption (PDF 401KB)
This paper studies the importance of intertemporal substitution in consumption for the cyclical co-movement of consumption, net worth and income in New Zealand. We can largely explain the empirical hump-shaped consumption response to a transitory wealth increase by allowing for time-varying returns in an otherwise standard Permanent Income Hypothesis (PIH) model. At the net worth peak, households bring consumption forward in anticipation of low returns on saving. The PIH model fully explains the empirical response when households initially expect the net worth shock to be permanent, but gradually learn that it is in fact transitory.
DP 2011/04
An estimated small open economy model with frictional unemployment (PDF 331KB)
This paper investigates labour market dynamics in New Zealand by estimating a structural small open economy model enriched with standard search and matching frictions in the labour market. We show that the model fits the business cycle features of key macroeconomic variables reasonably well and provides an appealing monetary transmission mechanism. We then extend our analysis to understand the driving forces behind labour market variables. Our findings suggest that the bulk of variation in labour market variables is solely explained by disturbances pertaining to the labour market.
DP 2011/03
Evaluating density forecasts: model combination strategies versus the RBNZ (PDF 463KB)
By Chris McDonald and Leif Anders Thorsrud
Forecasting the future path of the economy is essential for good monetary policy decisions. The recent financial crisis has highlighted the importance of tail events, and that assessing the central projection is not enough. The whole range of outcomes should be forecasted, evaluated and accounted for when making monetary policy decisions. As such, we construct density forecasts using the historical performance of the Reserve Bank of New Zealand's (RBNZ) published point forecasts. We compare these implied RBNZ densities to similarly constructed densities from a suite of empirical models. In particular, we compare the implied RBNZ densities to combinations of density forecasts from the models. Our results reveal that the combined densities are comparable in performance and sometimes better than the implied RBNZ densities across many different horizons and variables. We also find that the combination strategies typically perform better than relying on the best model in real-time, that is the selection strategy.
DP 2011/02
This paper looks at the boom period between 2000 and 2008 in the international prices of four internationally-traded commodities: oil, dairy products, beef and lamb. All are important drivers of macroeconomic dynamics in New Zealand. Our aim is to provide overviews of the demand and supply factors specific to each market and product, thus adding colour to more general analyses of the macroeconomic and financial drivers of the cycles in world commodity markets over the period. For each commodity market we examine here, we set out the structures of the markets and the major drivers of world demand and supply, and discuss the apparent relative strength of each of the drivers.
DP 2011/01
Any port in a storm? The impact of new port infrastructure on New Zealand exporter behaviour (PDF 635KB)
This paper investigates the impact of port infrastructure on exporter behaviour, focusing on the opening of Metroport, a new inland port in Auckland. We model adoption of the new port facilities among local firms, and then relate uptake to future export growth performance. We find that the main determinants of uptake are product- and firm-related, rather than location-specific. Firms use the new port infrastructure in conjunction with the existing port in order to mitigate capacity constraints and/or access a greater range of transport options. We take early adoption of Metroport as a signal of an existing capacity constraint and analyse the effect of the new port on subsequent export growth, finding a positive but insignificant impact on export volumes.
Discussion paper correspondence can be directed to:
Economics Department
Reserve Bank of New
Zealand
PO Box 2498
Wellington
New Zealand
