Peter Tulip's web page
I am Senior Research Manager in the Economic Research Department of the Reserve Bank of Australia.
Before that, I worked at the US Federal Reserve Board of Governors, most recently as Senior Economist in the Macroeconomic and Quantitative Studies Section.
CV (as of 2019)
Cost-benefit Analysis of Leaning against the Wind (with Trent Saunders)
· RBA Research Discussion Paper, 2019-05, July 2019
Setting interest rates higher than macroeconomic conditions would warrant due to concerns about financial instability is called ‘leaning against the wind’. Many recent papers have attempted to quantify and evaluate the effects of this policy. This paper summarises this research and applies the approach to Australia.
The papers we survey see the benefit of leaning against the wind as avoiding financial crises, such as those that affected Australia in 1990 or other countries in 2008. Most of the international research finds that interest rates have too small an effect on the probability of a crisis for this benefit to be worth higher unemployment. Using Australian data, we find similar results. We estimate the costs of leaning against the wind to be three to eight times larger than the benefit of avoiding financial crises. However, research has not yet quantified the increased resilience of household balance sheets, which may be an extra benefit of leaning against the wind.
A Model of the Australian Housing Market (with Trent Saunders)
· RBA Research Discussion Paper, 2019-01, March 2019
We build an empirical model of the Australian housing market that quantifies interrelationships between construction, vacancies, rents and prices. We find that low interest rates (partly reflecting lower world long-term rates) explain much of the rapid growth in housing prices and construction over the past few years. Another demand factor, high immigration, also helps explain the tight housing market and rapid growth in rents in the late 2000s. A large part of the effect of interest rates on dwelling investment, and hence GDP, works through housing prices.
The Effect of Zoning on Housing Prices (with Ross Kendall)
Zoning regulations provide benefits, but they also restrict housing supply and hence raise prices. This paper quantifies their importance by comparing prices to the marginal costs of supply at different points in time. For detached houses, marginal costs comprise the dwelling structure and the land that other home owners need to forego. Relative to our estimates of these costs, we find that, as of 2016, zoning raised detached house prices 73 per cent above marginal costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth. Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney. We emphasise that this is not the amount that housing prices would fall in the absence of zoning. The effect of zoning has increased dramatically over the past two decades, likely due to existing restrictions binding more tightly as demand has risen.
· Less-technical Summaries:
Research shows that zoning restrictions are driving up housing prices
By John Daley, Brendan Coates and Trent Wilshire
theConversation.com, March 8, 2018
Anticipatory Monetary Policy and the Price Puzzle (with James Bishop)
Vector autoregressions often find that inflation increases in response to a tightening in monetary policy, although standard macroeconomics predicts the opposite. This ‘price puzzle’ is commonly thought to reflect interest rates being tightened in anticipation of future inflation, reflecting information possessed by policymakers beyond that contained in the model. Romer and Romer (2004) and Cloyne and Hürtgen (2016) successfully remove the price puzzle from US and UK data, respectively, by purging the cash rate of systematic policy responses to central bank forecasts. We find that this approach does not work for Australia under a wide range of specifications. This suggests that VARs may not be the most reliable way to analyse monetary policy.
Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve's Approach (with David Reifschneider)
The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve regularly publishes participants’ qualitative assessments of forecast uncertainty, expressed relative to that seen on average in the past. The benchmarks used for these historical comparisons are the average root mean squared forecast errors (RMSEs) made by various private and government forecasters over the past twenty years. This paper documents how these benchmarks are constructed and discusses some of their properties. We draw several conclusions. First, if past performance is a reasonable guide to future accuracy, considerable uncertainty surrounds macroeconomic projections. Second, different forecasters have similar accuracy. Third, estimates of uncertainty about future real activity and interest rates are now considerably greater than prior to the financial crisis; in contrast, estimates of inflation accuracy have changed little. Finally, fan charts, constructed under certain assumptions and viewed in conjunction with the FOMC’s qualitative assessments, provide a reasonable approximation to future uncertainty.
Okun's Law and Potential Output (with David Lancaster)
We find that Okun's law provides a simple and accurate means of understanding and predicting changes in the unemployment rate in Australia. Okun's law also implies a rate of output growth consistent with stable unemployment, called the growth of potential output. Our estimates of potential output growth are imprecise and fluctuate over time. A recent estimate is a bit below 3 per cent a year, with a +/− one standard error band covering the range 2½ to 3½ per cent. This is a percentage point or two below estimates from before the mid-1990s.
The Effect of the Mining Boom on the Australian Economy
This article presents estimates of the effects of the mining boom using a macroeconometric model of the Australian economy. The mining boom is estimated to have boosted real per capita household disposable income by 13 per cent over the decade to 2013. The boom contributed to a large appreciation of the Australian dollar that has weighed on other industries exposed to trade, such as manufacturing and agriculture.
"The Effect of the Mining Boom on the Australian Economy" (with Peter Downes and Kevin Hanslow)
This paper estimates the effects of the mining boom in Australia, using a large-scale structural macroeconometric model, AUS-M. We estimate that the mining boom boosted real per capita household disposable income by 13 per cent by 2013. The boom has contributed to a large appreciation of the Australian dollar that has weighed on other industries exposed to trade, such as manufacturing and agriculture. However, because manufacturing benefits from higher demand for inputs to mining, the deindustrialisation that sometimes accompanies resource booms -- the so-called "Dutch disease" -- has not been strong.
"Is Housing Overvalued?" (with Ryan Fox)
· Press clips: The SMH (15/7/2014, p1); The AFR (15/7/2014, p1); the Age (9/7/2015, p1). The Smart Money supplement to the AFR did a special issue focusing on our paper on 19/7/2014. Here is the lead article.
This paper examines whether it costs more to own a home or to rent. We argue this is a useful criterion for assessing housing overvaluation. We use a new Australian dataset, which includes prices and rents for matched properties, letting us value housing in levels. We find that if real house prices grow at their historical average pace, then owning a home is about as expensive as renting. If prices grow more slowly, as some forecasters predict, the framework used in this paper suggests that the average home buyer would be financially better off renting. We decompose house prices into contributions from rents, interest rates and expected capital gains, which may help policymakers in the detection of housing bubbles. Recent data do not show signs of a bubble.
"Fiscal Policy and the Inflation Target"
· Discussion by Johannes F. Wieland
· RBA Research Discussion Paper; March 2014 (slightly longer version)
Low interest rates in the United States have recently been accompanied by large fiscal stimulus. However, discussions of monetary policy have neglected this fiscal activism, leading to over-estimates of the costs of the zero lower bound and, hence, of the appropriate inflation target. To rectify this, I include counter-cyclical fiscal policy within a large-scale model of the US economy. I find that fiscal activism can substitute for a high inflation target. If fiscal policy behaves as it has recently, then an increase in the inflation target is not warranted, despite increased volatility of macroeconomic shocks.
· Supporting material:
Fed staff memo on inflation
targeting (Elmendorf et al, 2005)
"Considerations Pertaining to the Establishment of a Specific, Numerical, Price-Related Objective for Monetary Policy" memo to the US Federal Open Market Committee, by Doug Elmendorf, David Wilcox and others, January 21, 2005.
This memo can also be obtained by FOI request to the Board of Governors.
o FRB/US equations (updated versions of this file are available from the Fed, on request).
"Estimates of Uncertainty around the RBA's Forecasts" (with Stephanie Wallace)
We use past forecast errors to construct confidence intervals and other estimates of uncertainty around the Reserve Bank of Australia's forecasts of key macroeconomic variables. Our estimates suggest that uncertainty about forecasts is high. We find that the RBA's forecasts have substantial explanatory power for the inflation rate but not for GDP growth.
"Has the Economy Become More Predictable? Changes in Greenbook Forecast Accuracy"
· Journal of Money, Credit and Banking, Vol 41, No 6 (September 2009) pp1217- 1231. (gated link)
Gauging the Uncertainty of the Economic Outlook from Historical Forecasting Errors (with Dave Reifschneider)
· Version of August 2008 (shorter, updated)
Financing Higher Education (with Bruce Chapman)
· in Peterson, Baker, McGaw (editors) International Encyclopedia of Education, Elsevier,2010 vol 4 pp 499-506
"Do minimum wages raise the NAIRU ?"
· An ungated link to the paper (400KB pdf )
· The Economist says nice things about the paper, Economic Focus of February 1, 2001
OECD Working Papers and Survey Chapters
· ''Financing Higher Education in the United States,'' No 584 (2007).
· ''Primary and Secondary Education in the United States'' (with Gregory Wurzburg), No 585 (2007).
· ''Financial Markets in Iceland,'' No 549 (2006).
"Polynomial Adjustment Costs in FRB/US" with Flint Brayton and Morris Davis
"Equilibrium unemployment with staggered wages" Draft of July 2000