Glenn Otto’s Web Page

Associate Professor

School of Economics

University of New South Wales

Sydney 2052

Australia

 

UNSW Website http://www.economics.unsw.edu.au/GlennOtto

Email: g.otto@unsw.edu.au

This website contains my publications, current research papers, relevant programs and data.

Recent Work

 

Monetary Policy Targeting Rules

 

Flexible Inflation Targeting: Evidence for Canada (with Graham Voss), October 2011. We examine models of flexible inflation targeting. The target criteria from these models restrict the conditionally expected paths of inflation and output targeted by the central bank. We estimate and test these rules using monthly data for Canada – an early adopter of inflation targeting. It appears that the Bank of Canada balances inflation and resource utilization over the medium term policy horizon in a manner that is consistent with flexible inflation targeting. Key results from the paper are summarized in these Slides (along with some comparative results for Australia).

 

Strict and Flexible Inflation Forecast Targets: An Empirical Investigation (with Graham Voss) Revised Version, April 2009. Targeting rules are an alternative to the Taylor rule for thinking about how central banks should set monetary policy. Svensson (2003) and Woodford (2007) have argued that central banks should implement monetary policy via forecast targeting rules. Unlike the Taylor rule, there is relatively little empirical evidence on whether any forecast targeting rule is consistent with the data. We test some simple targeting rules implied by the basic New Keynesian model for Australia, Canada and the United States. The data suggest that all three countries are flexible inflation targeters, but the relative weight given to output variations is not very large. Slides for presentation at HKIMR.

 

Published Papers

 

Flexible Inflation Targeting

 

What do the RBA’s Forecasts Imply About its Preferences over Inflation and Output Volatility? (with Graham Voss) Economic Record, 2011, 84(267), 405-420. Published Version. Our results suggest that the RBA targets a linear combination of deviations of inflation around target and output growth around potential growth – where the weight given to output growth deviations is about one-half that given to inflation deviations. Data and Program Files.

 

House Prices

 

Supply Elasticity Estimates for the Sydney Housing Market (with Emily Gitelman), Australian Economic Review, 2012, 45(2), 176-190. Published Version. We present estimates of the supply elasticity for residential property in metropolitan Sydney over the period 1991-2006. Our results suggest that supply is inelastic – less than unity – for all types of housing; although the supply elasticity is relatively larger for strata properties (apartments and flats) than for non-strata properties (separate and semi-detached houses, terraces and town-houses). We also find evidence of a significant fall in supply elasticity between 1991-1996 and 2001-2006, suggesting that housing supply in Sydney has become less elastic over time. Data Files. Program Files.

 

Prices, Rents and Rational Speculative Bubbles in the Sydney Housing Market (with Eden Hatzvi). Economic Record, 2008, 84(267), 405-420. Published Version. This paper offers an asset pricing explanation for the sharp rise in the price-rent ratio for residential property in Sydney that occurred in the late 1990s – early 2000s. A full set of empirical results, referred to in the published paper (but not reported) can be found in the October 2007 version. The main points of the paper can be found in Slides for ACE 07. An even earlier version of the paper contains additional results – Old Version (June 2007). Data and Program Files.

 

The Growth of House Prices in Australian Capital Cities: What Do Economic Fundamentals Explain? Australian Economic Review, 2007, 40(3), 225-38. Published version. Paper contains empirical estimates of the effect of mortgage rates on the growth rate of house prices in Australian cities. Data File (Excel). An earlier version of the paper is available as a Centre for Applied Economic Research (CAER) Working Paper 2006(10).

 

Consumption and Wealth

 

The Response of Australian Consumption to Housing Wealth (with Lance Fisher and Graham Voss). Journal of Macroeconomics, 2010, 32(1), 284-299. Published version. Large variations in house prices can lead to significant changes in the level of household wealth. Using Lettau and Ludvigson’s (2004) cointegration approach, we investigate the response of non-housing consumption to permanent and transitory changes in financial and non-financial (housing) wealth in Australia since the mid-1970s. The data provide evidence that housing wealth contains a large transitory component, but up to 2004 at least, these transitory changes in wealth are not associated with any significant response in consumption. When post-2004 data are included in the estimation, there is some evidence that household consumption responds to recent transitory rises in wealth and labor income. However this finding needs to be weighed against weaker evidence of a cointegrating relationship for consumption, income and wealth. Data File.

 

International Macroeconomics

 

Discussion of “International Business Cycle Co-Movements Through Time” by D Andrews and M Kohler in The Changing Nature of the Business Cycle, (ed) C. Kent and D. Norman, Proceedings of a Conference 11-12 July 2005, RBA, 220-224. link.

 

“Persistence of Output Fluctuations under Different Exchange Rate Regimes,” (with Mark Crosby), Asian Economic Journal, 2003, 17(3), 281-296. Data File. An earlier version can be found at HKIMR WP 07/2001.

“Can an Intertemporal Model Explain Australia's Current Account Deficit?” Australian Economic Review, 2003, 36(3), 350-359. Data and Program Files.

“The Effect of Terms of Trade Shocks on the Trade Balance: There is a Harberger Laursen-Metzler Effect?” Journal of International Money and Finance, 2003, 22(2), 155-184. Data File.

 

“An Australian-New Zealand Currency Union?” (with Mark Crosby), in G. de Brouwer, (ed.), Financial Markets and Policies in East Asia, Routledge, 2002, 325-335.

 

“Understanding OECD Output Correlations,” (with Graham Voss and Luke Willard), RDP 2001-05, Reserve Bank of Australia, 2001. link.

 

“Growth and the Real Exchange Rate – Evidence from 11 Countries,” (with Mark Crosby), HKIMR WP 8/2001. link.

 

“Optimal Consumption, External Debt and the Real Interest Rate,” (with Graham Voss), Journal of Macroeconomics, 1995, 17(3), 471-494.

 

“Consumption Smoothing and the Current Account,” (with Ross Milbourne), Australian Economic Papers, December 1992, 369-384.

 

“Testing a Present-value Model of the Current Account: Evidence from United States and Canada,” Journal of International Money and Finance, 1992 11(5), 414-430.

 

Public Capital

 

“Public Investment and Economic Growth,” (with Ross Milbourne and Graham Voss), Applied Economics, 2003, 35, 527-540.

 

“Is Public Capital Provision Efficient?” (with Graham Voss), Journal of Monetary Economics, August 1998, 42, 47-66.

 

“Public Capital and Private Sector Production,” (with Graham Voss), Southern Economic Journal, January 1996, 62(3), 723-738.

 

“Public Capital and Private Sector Productivity: A Review of the Empirical Evidence,” (with Graham Voss), The Economic and Labour Relations Review, 1995, 6(1), 52-70.

 

“Public Infrastructure and Private Production,” (with Graham Voss), Agenda, 1995 2(2), 181-189.

 

“Public Capital and Private Sector Productivity,” (with Graham Voss), The Economic Record, June 1994, 209, Vol. 70, 121-132.

 

Macroeconomics

 

“Central Bank Operating Procedures: How the RBA Achieves its Target for the Cash Rate,” Australian Economic Review, 2007, 40(2), 216-224.

 

“Money Demand in General Equilibrium Endogenous Growth: Estimating the Role of a Variable Interest Rate Elasticity,” (with Max Gillman), Quantitative and Qualitative Analysis in Social Sciences, 2007, 1(1), 1-25. link

 

“Inflation and the Capital Stock,” (with Mark Crosby), Journal of Money, Credit and Banking, May 2000, 32(2), 236-253.

 

“The Solow Residual for Australia: Technology Shocks or Factor Hoarding?” Economic Inquiry, January 1999, 17(1), 136-153.

 

“Productivity Growth and Economic Policy in Australia,” Research Paper No. 19, Department of the Parliamentary Library, 1997. link

 

“Australian Business Cycle Facts,” (with Lance Fisher and Graham Voss), Australian Economic Papers, December 1996, 202-222.

 

“Buffer-Stock Money: Interpreting Short-Run Dynamics Using Long-Run Restrictions: Comment,” (with Ross Milbourne), Journal of Money, Credit and Banking, May 1996, 28(2), 272-278.

 

“Real Business Cycles: An Introduction,” (with Mark Crosby), Australian Economic Review, 1995, 3rd Quarter, 53-70.

 

“Seasonal Unit Root Tests on Canadian Macroeconomic Time Series,” (with Tony Wirjanto), Economics Letters, 1990, 34, 117-120.

 

“Estimates of Canadian GDP, Monthly, 1962 to 1985”, (with Richard Guay, Ross Milbourne and Gregor Smith), L’Actualite Economique, 1990, 66(1), 14-30.