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    Does the U.S. export inflation? Evidence from the dynamic inflation spillover between the U.S. and EAGLEs
    (Elsevier Inc, 2024-07-02) Nguyen TTT; Pham SD; Li X-M; Do HX
    Given the crucial role of inflation as a key economic barometer, our paper investigates the dynamic inflation spillover between the U.S. and the nine emerging and growth-leading economies (EAGLEs) between 1991M1 and 2020M2. Employing the recently developed time-varying parameter vector autoregressions (TVP-VAR)-based connectedness approach, we find evidence of a moderate inflation spillover across the sample countries at normal condition. We further point out that inflation spillover effects with the U.S. are more pronounced for the emerging markets with higher openness, the net oil-importing emerging markets, and the emerging markets following free-float exchange rate regimes. More importantly, the inflation spillover index among the system rises dramatically to over 70% under extremely inflationary conditions, implying that the transmission of spiral inflation is very high. Additionally, the time-varying analysis shows that the role of the U.S. in the inflation shock transmission with emerging countries varies between being a net inflation-exporter and inflation-importer over times. Finally, an investigation of the drivers of the inflation spillovers reveals that the U.S. dollar, emerging markets' economic policy uncertainty, and bilateral trade are key determinants of the inflation shock transmission among the system. Our findings justify central banks’ actions in decreasing U.S. dollar reserves to safeguard their domestic currencies.
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    A closer look at the Nairu : a thesis presented in partial fulfilment of the requirements for the degree of Masters in Applied Economics at Massey University
    (Massey University, 1998) Smith, David
    This research will attempt to analyse the usefulness of the concept of the NAIRU (Non-Accelerating Inflation Rate of Unemployment, hereafter NAIRU). The history and development of the NAIRU will be analysed. There will be specific reference to the New Zealand economy and the policy implications of the NAIRU for New Zealand. The policy decisions in New Zealand such as the Reserve Bank Act and the Employment Contracts Act will be studied in an attempt to discern any implicit NAIRU goals. The aim is to find if the NAIRU is effective as a policy tool, and to understand the implications of the concept both if it is valid, and if it is invalid. The research will derive a NAIRU value empirically for the New Zealand economy. Comment will be made on the empirical techniques used by economists in their estimation of the NAIRU. In conclusion an understanding of the NAIRU, its validity, and its use to New Zealand policy makers, recommendations for further study will also be made.
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    The linkage between banking sector, economic fundamentals and the Indonesian currency crisis : a thesis presented in partial fulfillment of the requirements for the degree of Master of Applied Economics at Massey University
    (Massey University, 2000) Nugroho, Agus Eko
    This study shows that a link exists between the weaknesses in the banking sector, economic fundamentals and the rapid depreciation of the rupiah exchange rate. The weakness in the banking sector was strongly associated with the number of insolvent banks and the rise in foreign liabilities of the banking sector in the pre-crisis period. The increase in the ratio of trade deficit to GDP and the rise in the domestic and foreign interest rate differential largely contributed to the deterioration in the Indonesian economic fundamentals during 1990-1998. Somewhat surprisingly, the interaction variable between the ratio of foreign reserves to imports and the foreign and domestic interest rate is statistically significant. This finding implies that the impact of the change in the ratio of foreign reserves to imports on the change in the rupiah exchange rate is moderated by the magnitude of the foreign and domestic interest rate differential. Similarly, the change in the rupiah exchange rate resulting from a change in the foreign and domestic interest rate differential is moderated by the value of the ratio of foreign reserves to imports. Finally, the dummy variable used to capture the effect of a change in the policy of exchange rate regime shows that the abandonment of the pegged exchange rate regime led to the rapid depreciation of the rupiah exchange rate.
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    Optimising central bank behaviour in a stochastic environment with uncertain credibility : a thesis presented in partial fulfilment of the requirements for the degree of Master of Applied Economics at Massey University
    (Massey University, 1998) Croke, Hilary
    Central bank credibility is defined for the purposes of this thesis as the belief held by agents that the central bank will not renege on its commitment to the specified monetary policy objective. Agents' perceptions on both the integrity and ability of the central bank to achieve and maintain price stability affect the determination of actual inflation via expected inflation. In the past, theoretical models have attempted to capture credibility effects through the application of game theory to assimilate the strategic interaction that occurs between the central bank, the government and agents. For the most part, these models are simple in structure and combined with the limitations commonly attributed to game theory have been heavily criticised. The results derived from empirical analyses of credibility have also been subject to debate due to the directly unobservable nature of credibility. In the past, such analyses have used a variety of measures to proxy credibility effects. While it is generally accepted that expected inflation would perhaps be the most accurate indicator, expectations are equally as subjective as credibility. The results presented in this thesis are derived from simulations of the Reserve Bank's macroeconomic model used for forecasting and policy analysis (FPS). Given that the central bank faces uncertainty regarding its true level of credibility, it is necessary for policymakers to assume the level of credibility when formulating monetary policy. Depending on the specific disturbance that hits the economy, the combined effect of the bank's assumed and actual level of credibility can ultimately determine the success of the implemented policy. The main motivation of this thesis is to determine the extent to which the central bank benefits when it is aware of the fact it truly has credibility or whether the optimal policy response should always be based on the premise of no credibility. In order to provide a more realistic analysis, stochastic simulations of FPS are used. In this case, the central bank observes a combination of five impulses simultaneously hit the economy in the current period and taking into account the effects of the impulses from previous periods, formulates monetary policy depending on its assumed level of credibility. Despite the added dimension of uncertainty the central bank faces surrounding the occurrence of future shocks, the results indicate that the increase in output loss normally associated with a harsh policy response is minimal. By assuming a lack of credibility and thereby adopting a prudent approach to monetary policy, inflation variability is substantially reduced without any significant increase in output variability.
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    A study of the impact of monetary policy on long-term interest rates in New Zealand : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Financial Economics at Massey University
    (Massey University, 1998) Ji, Jun
    This paper examines the impact of monetary policy on the daily long-term interest rate (the 10 year government bond rate) in New Zealand. An attempt is also made to compare the impact of international long-term interest rates (the 10 year bond rate) on domestic long-term rates. The Monetary Condition Index (MCI) and 90 day bill rates are used as proxies for the Reserve Bank's monetary stance over the period 3 October 1994 to 30 September 1997. In the empirical literature, it is common to use the benchmark short-term interest rate as the monetary policy proxy. However, this paper argues that using the MCI as the proxy is more appropriate, as it incorporates the effect of the exchange rate, and in part reflects the monetary policy stance of the Reserve Bank. The study finds that the impact of domestic monetary policy on daily long-term interest rates is limited compared to the impact of international interest rates on those same rates. New Zealand long-term interest rates seem not only to move with international rates, but seem to be largely driven by them.
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    The relationship between value and growth stock returns, monetary policy and economic activity : evidence from New Zealand, Australia and the US : a thesis presented in partial fulfilment of the requirements for the degree of Masters of Business Studies in Finance at Massey University
    (Massey University, 1998) Penberthy, Fiona
    This thesis examines the relationship between monetary policy, economic activity and value and growth stock returns in New Zealand, Australia and the US for the period 1990 to 1997. There is evidence to suggest that in the short-term, there are periods where value stocks outperform growth stocks and vice versa. This study investigates the role a number of economic variables play in driving the relative performances of these two groups of stocks. The primary focus of this study is on the relationship between value and growth stock returns and monetary policy, however, the following economic variables are also included in the analysis: Short-term interest rates, the exchange rate, GDP, inflation, money supply, and a business confidence index. Vector autoregressions form the methodological basis for this research and provide impulse response functions and forecast error variance decompositions that are used to determine relationships between the variables. The major finding of this study is that value stocks in Australia and the US perform relatively better than growth stocks during periods of loosening monetary policy. On the other hand, value stocks in New Zealand perform relatively better than growth stocks during periods of tightening monetary policy.