Stabilization bias for a small open economy: The case of New Zealand

Philip Liu

doi:10.1016/j.jmacro.2009.11.004

Stabilization bias for a small open economy: The case of New Zealand

Philip Liu^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

Using a fully specified DSGE model, this paper investigates the relationship between a central bank's policy objectives and the stabilization bias. The model is estimated using data from New Zealand. Results indicate that the size of the stabilization bias is nearly twice as large for a small open economy relative to that of closed economies. The results also indicate that the size of the stabilization bias is increasing with respect to the policymaker's preference for exchange rate stabilization.

Original language	English
Pages (from-to)	921-935
Number of pages	15
Journal	Journal of Macroeconomics
Volume	32
Issue number	3
DOIs	https://doi.org/10.1016/j.jmacro.2009.11.004
Publication status	Published - Sept 2010

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10.1016/j.jmacro.2009.11.004

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title = "Stabilization bias for a small open economy: The case of New Zealand",

abstract = "Using a fully specified DSGE model, this paper investigates the relationship between a central bank's policy objectives and the stabilization bias. The model is estimated using data from New Zealand. Results indicate that the size of the stabilization bias is nearly twice as large for a small open economy relative to that of closed economies. The results also indicate that the size of the stabilization bias is increasing with respect to the policymaker's preference for exchange rate stabilization.",

keywords = "Bayesian estimation, DSGE models, Small open economy, Stabilization bias",

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AB - Using a fully specified DSGE model, this paper investigates the relationship between a central bank's policy objectives and the stabilization bias. The model is estimated using data from New Zealand. Results indicate that the size of the stabilization bias is nearly twice as large for a small open economy relative to that of closed economies. The results also indicate that the size of the stabilization bias is increasing with respect to the policymaker's preference for exchange rate stabilization.

KW - Bayesian estimation

KW - DSGE models

KW - Small open economy

KW - Stabilization bias

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DO - 10.1016/j.jmacro.2009.11.004

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JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

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Stabilization bias for a small open economy: The case of New Zealand

Abstract

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