We estimate a Factor Augmented Vector autoregression (FAVAR) to identify idiosyncratic exchange rate shocks and examine the effects of these shocks on different sectors of the economy. We find that an unexpected shock to the exchange rate has significant effects on the tradable sector of the...

Transmission mechanisms are the channels through which monetary policy affects macroeconomic variables, such as GDP and inflation. Differences in transmission mechanisms can generate asymmetric behaviour among currency union partners when they experience shocks. This has the potential to widen...

This article sets out theoretical and empirical evidence on the impact of fiscal policy on the business cycle. Our analysis suggests that fiscal policy has a significant influence on cyclical conditions in New Zealand. Simple measures of the stance of fiscal policy, such as the Treasury’s...

This article is an edited version of a paper written for the Centre of Central Banking Studies' Chief Economists Workshop in London in May 2006. The article reviews the evolution of modelling at the Reserve Bank of New Zealand from the 1970s to today, focusing on the changing role of inflation...

Few people have had such strong influence on macroeconomics in general and on the New Keynesian School of macroeconomics as Mark Gertler has. His work with Ben Bernanke and Simon Gilchrist on the role of credit and financial conditions on business cycles, and with Ben Bernanke on whether the...

The output gap plays a crucial role in thinking and actions of many central banks but real time measurements undergo substantial revisions as more data become available (Orphanides (2001), Orphanides and van Norden (forthcoming)). Some central banks augment, such as the Bank of Canada and the...

Differences in transmission mechanisms can generate asymmetric behaviour among currency union partners when they experience shocks. This has the potential to widen existing cyclical variation between members of a currency union. Our analysis suggests that the transmission mechanisms of GDP and...

A parental seller with market power to some degree in its product market can earn rents. In this context, there is a gain to granting credit for the purchase of the product and thus the establishment of captive finance company for expanding the sales by offering loans to consumers who need...

A holdup model is analyzed in which one party, the seller, has an investment project that the other party, the buyer, can subsidize. The investment project remains the seller's; she cannot transfer her entire control rights to it. In particular, she can always refuse to allow the buyer to...