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Measuring Uncertainty and Its Impact on a Small Open Economy
Author(s) -
Greig Lucy,
Rice Amy,
Vehbi Tugrul,
Wong Benjamin
Publication year - 2018
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.12255
Subject(s) - economics , business cycle , small open economy , monetary policy , econometrics , set (abstract data type) , macroeconomics , computer science , programming language
We study the effect of uncertainty in New Zealand, a small open economy, by considering global and New Zealand‐specific uncertainty proxies, including several US‐ and global‐centric measures and two novel New Zealand‐specific uncertainty proxies constructed using surveys of New Zealand firms and professional forecasters. We study the effect of uncertainty on a set of New Zealand macroeconomic variables. While all of the uncertainty proxies contain valuable information to understand macroeconomic fluctuations in New Zealand, a simple SVAR analysis suggests that global uncertainty is more important than domestic uncertainty in driving the New Zealand business cycle. The implications of uncertainty for monetary policy largely depend on how heightened uncertainty interacts with monetary policy objectives.