An estimated small open economy model with frictional unemployment

Release date
01/08/2011
Reference
DP2011/04
Authors
Julien Albertini; Güneş Kamber; Michael Kirker
Published as
Albertini, Julien, Güneş Kamber and Michael Kirker (2012). ‘Estimated small open economy model with frictional unemployment’, Pacific Economic Review, Wiley, Volume 17(2), Pages 326-353, DOI: https://doi.org/10.1111/j.1468-0106.2012.00585.x.

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.