Munich Personal RePEc Archive

Should the Reserve Bank worry about the exchange rate?

Nguyen, Luan (2016): Should the Reserve Bank worry about the exchange rate?

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This research paper is focused on estimating a set of parameters for a simple monetarypolicy model of New Zealand and calibrate these parameters to compute viability kernels. We found output gap to be persistent across our sample period. There is weak evidence of a downward sloping IS curve and an upward sloping Phillips curve. The estimation results for thereal exchange rate parameter in the IS equation and the uncovered interest rate parity do notconfirm the theoretical predictions. By calibrating the estimated parameters to our viability analysis, we recommend that the Reserve Bank should not worry about the exchange rate, the OCR be lowered further and increasing the scope of fiscal policy in sharing the burden with monetary policy.

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