Annex I. Calibrating The GIMF Model for New Zealand
Annex II. Modeling the Risk Premium in GIMF
Annex III. New Zealand. How to Deal With Interest Savings?
Annex IV. Frontloading Fiscal Adjustment
Bell, Matthew, Gary Blick, Oscar Parkyn, Paul Rodway, and Polly Vowles, 2010, “Challenges and Choices: Modelling New Zealand’s Long-term Fiscal Position,” Treasury Working Paper 10/01.
Edwards, Sebastian, 2006, “External Imbalances in New Zealand,” in: Testing stabilization policy limits in a small open economy: proceedings from a macroeconomic policy forum, New Zealand Treasury and Reserve Bank of New Zealand.
Gemmell, Norman, Richard Kneller, and Ismael Sanz, 2009, “The Composition of Government Expenditures and Economic Growth: Some Evidence from OECD Countries,” (unpublished).
Kumar Manmohan S., Daniel Leigh, Alexander Plekhanov, 2007, “Fiscal Adjustments: Determinants and Macroeconomic Consequences,” IMF Working Paper 07/178.
Kumhof, Michael, Douglas Laxton, Dirk Muir, Susanna Mursula, 2010, “The Global Integrated Monetary and Fiscal Model (GIMF),” IMF Working Paper 10/34.
2025 Task Force, 2009, Answering the $64,000 Question: Closing the Income Gap with Australia by 2025: First Report and Recommendations.
Working Group on Tax Reform, 2010, A Tax System for New Zealand’s Future, Report of the Victoria University of Wellington Tax Working Group, at http://www.victoria.ac.nz/sacl/cagtr/twg/.
See Challenges and Choices—New Zealand’s Long-term Fiscal Statement, Treasury October 2009 and Treasury WP 10/01; Treasury Report: Getting Started on Closing the Income Gaps: Some Economic Scenarios and Options for Reform and Rebalancing, August 2009. S. Edwards, External Imbalances in New Zealand, in: Testing stabilization policy limits in a small open economy: proceedings from a macroeconomic policy forum, New Zealand Treasury and RBNZ, June 2006.
See Answering the $64,000 Question, Closing the income gap with Australia by 2025, first report of the 2025 Taskforce, November 2009; and A Tax System for New Zealand’s Future, Report of the Victoria University of Wellington Tax Working Group, January 2010.
For more information about the calibration, see Annex I. A detailed description is provided in Kumhof, Laxton, Muir, Mursula, 2010, The Global Integrated Monetary and Fiscal Model (GIMF)—Theoretical Structure, IMF WP/10/34.
For a more indepth discussion see IMF Country Report for the New Zealand 2010 Article IV Consultation.
The present calibration assumes that monetary policy puts a very large weight on inflation, and that households and firms correctly anticipate the monetary policy reaction.
All variables are in deviations from baseline. For example the net foreign asset position improves from -90 percent of GDP to -85 percent of GDP over an 8-year period (32 quarters).
The income effect of lower interest rates dominates the substitution effect, given the conventional assumption that the inter-temporal rate of substitution is smaller than 1.
Background papers for the Working Group on Tax Reform look more deeply at microeconomic and distributional consequences of fiscal reform. See http://www.victoria.ac.nz/sacl/cagtr/twg/. See also N. Gemmell and others, 2009.
Kumhof and Laxton (2009) find that without a change in the risk premium a 1 percent of GDP increase in the fiscal deficit leads to a long-run current account deterioration of 0.75 percent of GDP in a country of the size of the USA and 1 percent of GDP for a small open economy.