Dean Scrimgeour

A New Proof of Uzawa's Steady-State Growth Theorem

This note revisits the proof of the steady-state growth theorem, first given by Uzawa in 1961.We provide a clear statement of the theorem, discuss intuition for why it holds, and present a new, elegant proof due to Schlicht (2006).

Estimating a Taylor Rule for New Zealand with a time-varying neutral real rate

Many critics of the Taylor rule claim that it is inferior to inflation forecast based (IFB) rules because it is not forward-looking, is not aggressive enough, and because of uncertainty surrounding the output gap. Nevertheless, the Taylor rule serves a constructive purpose because it abstracts from the Banks macroeconomic model, FPS, and its performance is robust across various economic models. The Taylor rule thus provides a useful cross-check to the IFB rule, whose recommendations necessarily rely on a particular model structure, its dynamics and specific judgements over the forecast horizon. Additionally, this paper contends that any interest rate rule or model must account for the fall in the ex-ante real interest rate and the non-stationarity of short-term rates in New Zealand. We show how the neutral real interest rate (NRR) in the Taylor rule drifts downward since the second quarter of 1988, and explain why this presents additional real-time difficulties for the Taylor rule.

Health consequences of easier access to alcohol: New Zealand evidence

We evaluate the health effects of a reduction in New Zealands minimum legal purchase age for alcohol. Difference-in-differences (DD) estimates show a substantial increase in alcohol-related hospitalizations among those newly eligible to purchase liquor, around 24.6% (s.e.=5.5%) for males and 22% (s.e.=8.1%) for females. There is less evidence of an effect among ineligible younger cohorts. There is little evidence of alcohol either complementing or substituting for drugs. We do not find evidence that earlier access to alcohol is associated with learning from experience. We also present regression discontinuity estimates, but emphasize DD estimates since in a simulation of a rational addiction model DD estimates are closer than regression discontinuity estimates to the policys true effect.

Commodity Price Responses to Monetary Policy Surprises

Commodity prices are important both as a source of shocks and for the propagation of shocks originating elsewhere in the economy. Many vector autoregression (VAR) studies estimate a gradual response of commodity prices to monetary policy shocks. Exploiting information in high-frequency financial market data, and using the methods of Rigobon and Sack (2004) I find that a 10 basis point surprise change in interest rates causes commodity prices to fall immediately by about 0.5%. This is about two-thirds of the estimated response of the S&P500, and about five times larger than the response in a VAR 12 months after the shock. Metals prices tend to respond more than agricultural commodities. The point estimate for oil prices is similar to other commodities, but is estimated imprecisely.

Exchange Rate Volatility and Currency Union: Some Theory and New Zealand Evidence

This paper considers the effect of currency union on exchange rate volatility. At a theoretical level, a simple framework is developed for thinking about volatility and exchange rate arrangements and some inferences are drawn from it. Empirically, the interaction between currency areas and exchange rate volatility is analysed by constructing counterfactual exchange rate series for the scenarios of currency union with Australia or with the United States from 1985 to 2001. We cannot confidently conclude that New Zealands quarter-to-quarter exchange rate volatility would have been lower in a currency union with the United States or Australia. By contrast, cyclical variability in the New Zealand exchange rate has been greater over the last sixteen years than it would have been in a currency union with either Australia or the United States.

Dynamic Scoring in a Romer-Style Economy

This paper explores the dynamic behavior of a Romer-style endogenous growth model, analyzing how changes in tax rates affect government revenue in the short run and the long run. I show that in this environment lowering taxes on financial income is unlikely to stimulate tax revenue in the long run and has modest effects on the tax base, contrary to some other studies of the dynamic response of revenue to tax rates. Calibrations of the model that suggest Laffer curve effects can be substantial require implausibly low values for the elasticity of substitution between varieties of intermediate goods. For more plausible parameter values, I find that around 20% of a tax cut would be self-financing due to an expansion in the tax base.

Exchange rate volatility and currency union: New Zealand evidence

Abstract The conventional wisdom is that currency unions reduce exchange rate volatility. By definition, a currency union perfectly stabilizes the nominal exchange rate between the member countries. Nevertheless, variability in exchange rates with non-members matters too. This paper focuses on currency unions and exchange rate volatility with particular reference to New Zealand. For New Zealand, adopting either the Australian or the American dollar in the mid-1980s would not have reduced short-term exchange rate volatility. However, adopting the American dollar would have reduced cyclical exchange rate variability, and would have done so by more than a currency union with Australia.

USING ENGEL CURVES TO ESTIMATE CONSUMER PRICE INDEX BIAS FOR THE ELDERLY: ENGEL CURVE ESTIMATES OF CPI BIAS FOR THE ELDERLY

Over the last 30 years, the share of total expenditure devoted to food has declined more rapidly for elderly†headed households than for other households. This decline is not explained by a more rapid increase in measured total expenditure for the elderly, or by relative change in other covariates such as household composition. We present this as evidence that the true cost of living increased more slowly for the elderly than for the nonelderly over this period, in contrast to conventional wisdom that the elderly face a higher inflation rate. (JEL E31, J14)