Working papers 2001
Number 2001/01 - Kunhong Kim, Prof Viv B. Hall and Robert A. Buckle
"New Zealand's Current Account Deficit: Analysis based on the Intertemporal Optimisation Approach"
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Abstract
New Zealand's Current Account of the Balance of Payments has been persistently in deficit since the early 1970's and increased markedly during the late 1990s. Is this a cause for significant concern? This paper tackles this question by evaluating New Zealand's external solvency, the degree of optimality of the intertemporal consumption smoothing through its current account, and whether its international financial capital flows have been used in an optimal (consumption smoothing) fashion. We carry out statistical tests in relation to external solvency. We also estimate a "benchmark" consumption-smoothing component for its current account based on an intertemporal optimisation model in order to carry out tests of the optimality of the size and volatility of the current account. We could not reject the hypotheses that New Zealand's current account was consistent with optimal smoothing, that the external solvency condition has been satisfied, and that there is "no excess volatility" in international financial capital flows.
Number 2001/02 - Robert A. Buckle, Kunhong Kim & Julie Tam
"A Structural VAR Approach to Estimating Budget Balance Targets"
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Abstract
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 government's 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.
Number 2001/03 - Kunhong Kim and Young Sik Kim
"How Important is the Intermediate Goods Channel in Explaining Sectoral Co-Movements over the Business Cycle?"
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Abstract
This paper studies a multisector dynamic stochastic general equilibrium model calibrated to the 2-digit SIC level intermediate input-use and capital-use tables to investigate the importance of the intermediate input channel in explaining the sectoral employment comovement over the business cycle. In general, the intermediate input channel is not sufficient to generate the strong business cycle comovement across sectors: it further requires some form of worker's reluctance to substitute labor hours across sectors.
For example, as the labor hours become highly substitutable across sectors, some sectors' employment moves in the opposite direction to the aggregate employment. This reflects the key feature of the disaggregated actual input-use and capital-use matrices: only a few sectors serve as important inputs to all other sectors and most sectors use few intermediate inputs in production. Referring to some micro-level studies on the low wage elasticity of labor supply, a low substitution of labor hours is shown to generate the strong business cycle comovement in sectoral hours worked.