Robert A. Buckle

Menu costs, firm size and price rigidity

Abstract If menu costs have a non-negligible lump-sum component and with larger firms having greater benefits from price adjustments, then larger firms will change price more frequently than smaller firms. Data from New Zealand firms support this hypothesis. Price duration decreases as firm size increases. Ordered probit analysis indicates the effect comes primarily from larger firms being more likely than smaller firms to raise price in response to a demand or cost increases.

Inflation and Asymmetric Price Adjustment

Using a unique micro data set, we find pervasive evidence of price asymmetry that is systematically related to inflation. An ordered probit model of pricing by manufacturing, building and merchandising firms shows that inflation: (i) increases the probability of a price increase in response to cost increases and (ii) decreases the probability of a price decrease in response to decreases in demand. Predicted inflation-induced asymmetries also show up for price responses to cost decreases and demand increases but not as overwhelmingly. Similar asymmetries are evident in firms expectations of price changes, with a slight optimistic bias relative to actual changes.

Pacific Rim Business Cycle Analysis: Synchronisation and Volatility

This paper examines sychronisation and volatility of the business cycles of Pacific Rim countries which are closely linked by trade. Close synchronisation is evident amongst groups of countries, but it is difficult to establish meaningful cycle synchronisation between countries outside these groups. For instance, the cycles of New Zealand and Australia are closely synchronised with the USA cycle rather than with Hong Kong, Korea, Singapore and Taiwan, or with Japan. Average cycle volatility varies markedly across countries, from the lower volatility countries of Japan, USA and Australia, through to the high volatility economies of Hong Kong, Korea, and Singapore. But cycle volatility has also changed markedly over time, and the pattern of change is typically similar between countries that can be grouped in terms of cycle synchronisation. For example, the pattern for New Zealand has resembled the paths evident for USA and Australia. Similarly, Korea, Hong Kong, Singapore and Taiwan have experienced a relatively common pattern of change in volatility, which differs from that for USA, Australia and New Zealand.

Calm after the storm? Supply‐side contributions to New Zealand's GDP volatility decline

The variance of New Zealands real GDP has fallen by a third since the mid 1980s. Decomposing the variance of chain‐weighted estimates of production‐based real GDP growth since 1977 into sector shares, sector growth rate variances and co‐variances, this paper concludes that the principal reason for the decline in GDP volatility is a fall in the sum of sector variances. This is due to declining variances for Services and Manufacturing production growth. Sector co‐variances have had a dominant influence on the profile of GDP volatility and this influence has not diminished. Despite marked changes in sector shares, notably increases in Services and Primary sector shares and a decrease in the share of Manufacturing, this has not been a factor influencing the decline in GDP volatility. We postulate that policy interventions such as “Think Big”, regulatory interventions during the early 1980s, and the introduction of GST are key explanations for the higher volatility until the mid 1980s. Cessation of these policy interventions and responses to deregulation of several Services and Manufacturing industries after the mid 1980s appear to be important factors contributing to the decline in New Zealand GDP volatility since the mid 1980s.

A Structural VAR Approach to Estimating Budget Balance Targets

The Fiscal Responsibility Act 1994 states that, as a principle of responsible fiscal management, a New Zealand government should ensure total Crown debt is at a prudent level by ensuring total operating expenses do not exceed total operating revenues. In this paper a structural VAR model is estimated to evaluate the impact on the governments cash operating surplus (or budget balance) of four independent disturbances: supply, fiscal, real private demand, and nominal disturbances. Based on the distribution of these disturbances, stochastic simulations are undertaken to derive the level of the ex ante cash budget balance needed to achieve an actual cash budget balance, at a given level of probability, at some future time horizon.

Reserve bank autonomy and the credibility of monetary policy: A game‐theoretic approach

The Reserve Bank of New Zealand Act 1989 introduces at least two important changes to the institutional framework of monetary policy: it removes the Minister of Finance from involvement in day to day operations of monetary policy and it amends the statutory objectives of monetary policy to focus exclusively on price stability. The desire to ensure time‐consistency, and hence credibility, of monetary policy has been one of the driving forces behind the implementation of this Act. A simple model is used to analyse within a game‐theoretic framework, some complications that could arise if the Governments true objective function differs from that which guides the Reserve Bank. In a conflict between the objectives of monetary and fiscal authorities, it is shown that fiscal policy objectives may reduce the prospect of price stability. This potential threat to price stability from conflicting fiscal authority objectives means that a non‐preferred monetary response may have to be chosen so as to minimise the adve...

The requirements for fiscal sustainability in New Zealand

New Zealand, like many other countries, is experiencing a changing demographic profile from one dominated by young people during the twentieth century to one where the population is more evenly distributed across age groups. This has implications for the governments future fiscal position and sustainability of its spending programmes. This article discusses the link between the government budget constraint and fiscal sustainability, measures of fiscal sustainability, and why it is important. We examine New Zealand Treasurys approach to assessing fiscal sustainability, review lessons from previous fiscal adjustments, and discuss criteria to evaluate policy changes designed to achieve fiscal sustainability.

Introduction: Tax policy reform New Zealand style

The 2010 Budget (English, 2010a) introduced some of the most far-reaching changes to New Zealand’s tax system since the late 1980s. Tax reform was, in the words of the Minister of Finance, ‘. . . a centrepiece of this Budget’ (English, 2010a, p. 2). The tax reform package represented a switch in the New Zealand tax base achieved by reducing the heavy reliance on taxing incomes, increasing the taxation of spending and property investment income, and by a introducing a variety of base broadening measures. The package included across-the-board reductions in personal tax rates to take effect on 1 October 2010, a reduction in the corporate tax rate from 30% to 28% to take effect from 2010/11, and tax rate changes for savings vehicles such as portfolio investment entities, superannuation funds, etc, a rise in the rate of GST to 15% from 1 October 2010, a mixture of base-broadening measures that included revoking the 20% depreciation loading on new investments, removal of depreciation for buildings with expected lives of 50 years or more, a reduction in the thin capitalisation ‘safe harbour’ threshold for inward investment from 75% to 60%, and tightening up eligibility for Working for Families entitlement. The broad direction of tax reform introduced in the 2010 Budget should have come as no surprise to anyone. The Prime Minister signalled the Government’s intentions in his opening speech to the 2010 Parliamentary term (Key, 2010) and more details were subsequently provided by the Minister of Finance (English, 2010b). But even before these two speeches, a poll conducted in January 2010 by Shape NZ suggested there was widespread public acceptance of the need for tax reform. In that poll, 79% of respondents considered the tax system needed reforming, 65% thought the tax system was unfair, and 56% thought that lowering top personal tax rates and broadening the tax base would improve New Zealand’s attractiveness to skilled labour and investors. Yet just 12 months earlier, the tax system barely rated a mention in public debate. The road to New Zealand’s recent tax reform has been an interesting one. It has underscored the importance of well-informed policy advisors prepared to try new approaches to policy making, the value that can be gained from collaboration between academics, practitioners and policy advisors, and it also reflects the courage of Ministers prepared to risk new approaches to public policy development.

Population ageing and long-run fiscal sustainability in New Zealand

This paper discusses the challenge for fiscal sustainability in New Zealand in the face of the demographic transition involving population ageing and the ‘ageing of the aged’. The need for rational policy analysis is stressed in examining a wide range of policy responses and trade-offs, and the ingredients of successful policy analysis are discussed. Contributions to the Special Issue are described and placed in context.

The evolution of research quality in New Zealand universities as measured by the performance-based research fund process

ABSTRACT This paper examines how research quality of New Zealand university staff has evolved since introduction in 2003 of the Performance-based Research Fund (PBRF). The analysis uses a database consisting of an anonymous ‘quality category’ (QC) for each individual assessed in each of the three PBRF rounds. Emphasis is on evaluation of organisational changes. The paper examines the extent to which each universitys average quality score (AQS) changed as a result of changes in QCs of existing staff over time and from staff exit and entry. The data also include information about the age of staff evaluated in PBRF. This is used to assess changes in the age distribution of researchers across universities, and ages of those making transitions within universities and between grades. A number of hypotheses regarding organisation change in response to the introduction of PBRF are discussed and tested by comparing universities with different patterns of change.