Iris Claus

Is the Output Gap a Useful Indicator of Inflation

One of the main indicators of inflationary pressures used by the Reserve Bank of New Zealand is the output gap. The output gap is not directly observable and estimates have to be inferred from the data. This paper evaluates whether the output gap, however measured, is a good indicator of inflationary pressures in New Zealand. The results suggest that the output gap provides a useful signal to the monetary authority. When the output gap is positive (negative) two times out of three inflation will increase (decrease) in the next quarter and three times out of five it will increase (decrease) the following year.

Estimating Potential Output for New Zealand: A Structural VAR Approach

One of the main indicators of inflationary pressures used by the Reserve Bank of New Zealand is the output gap. A measure of potential output is obtained using a structural vector autoregression (SVAR) methodology. The assumption that movements in output are the result of cyclical shocks arising from demand-side developments, and productivity shocks arising from supply-side developments provides a set of identifying restrictions. Prior to the reforms, the New Zealand economy was in excess demand with a more prolonged and deeper recession in the early 1990s than alternative methods suggest. Evidence is provided that consumption increases in anticipation of higher future earnings.

Government Fiscal Policies and Redistribution in Asian Countries

This paper assesses the impact of government fiscal policies on income inequality in Asia. It discusses the role and effectiveness of redistributive fiscal policies and quantifies the effects of taxation and government expenditure on income distributions. Panel estimation for 150 countries with data between 1970 and 2009 confirms international empirical findings for Asia. Tax systems tend to be progressive but government expenditures are a more effective tool for redistributing income. Moreover, the results suggest some distinctive differential distributive effect for government expenditure on social protection in Asia. Social protection spending appears to increase income inequality, whereas it reduces it in the rest of the world. Also, adversely affecting the distribution of income in Asia is government expenditure on housing. Some options for improving the effectiveness of fiscal policies in Asia are discussed.

Coping with Rising Inequality in Asia: How Effective Are Fiscal Policies

This paper discusses the role and effectiveness of redistributive fiscal policies and provides estimates of the effects of taxation and government expenditure on income inequality in Asia. Tax systems around the world tend to be progressive, but government expenditure is generally found to be a more effective tool for redistributing income. In Asia, government spending on social protection has a distinctive differential distributive impact. Social protection spending appears to increase income inequality in Asia, whereas it reduces it in the rest of the world. Government expenditure on housing is also adversely affecting the distribution of income in Asia. Policy options for improving the redistributional effectiveness of fiscal policies in Asia are discussed.

New Zealand's economic reforms and changes in production structure

New Zealand’s reforms beginning in 1984 markedly improved the country’s economic prospects. They were one of the most radical and comprehensive programmes of structural change among countries in the Organisation for Economic Co‐operation and Development (OECD). This paper examines how New Zealand’s production structure was transformed using input output analysis. The results show that the reforms rapidly affected the economy and industries were subject to large structural change. Trade liberalisation was a central aspect of the reforms and has had dramatic effects on some industries.

Asset Markets and Monetary Policy Shocks at the Zero Lower Bound

This paper quantifies the impact of monetary policy shocks on asset markets in the United States and gauges the usefulness of a shadow short rate as a measure of conventional and unconventional monetary policy shocks. Monetary policy surprises are found to have had a larger impact on asset markets since short term interest rates reached the zero lower bound. Our results indicate that much of the increased reaction is due to changes in the transmission of shocks and only partly due to larger monetary policy surprises.

Effects of Taxation on Migration: Some Evidence for the ASEAN and APEC Economies

This paper investigates the effects of taxation on migration. It develops a stylized, two-country model to examine the impact of taxes on labor mobility. The theoretical predictions that taxes affect migration decisions and that educated workers are more responsive to taxation are supported by some empirical evidence for the economies of the Association of Southeast Asian Nations and the Asia-Pacific Economic Cooperation. The empirical application also shows that average tax rates have a larger impact on migration choices than marginal rates. Average tax rates are most important for migrants with secondary education, while marginal rates have a greater influence on the decisions of migrants with tertiary education compared to secondary-educated migrants. The finding that taxation affects migration decisions, in particular of educated migrants, has important policy implications.

Transmitting Shocks to the Economy: The Contribution of Interest and Exchange Rates and the Credit Channel

Understanding the transmission channels of shocks is critical for successful policy response. This paper develops a dynamic general equilibrium model to assess the relative importance of the interest rate, the exchange rate and the credit channels in transmitting shocks in an open economy. The relative contribution of each channel is determined by comparing the impulse responses when the relevant channel is suppressed with the impulse responses when all three channels are operating. The results suggest that all three channels contribute to business cycle fluctuations and the transmission of shocks to the economy. But the magnitude of the impact of the interest rate channel crucially depends on the inflation process and the structure of the economy.