Peter Tulip's web page

About me:

I am Chief Economist at the Centre for Independent Studies.

 

Previously I worked at the Reserve Bank of Australia, the US Federal Reserve Board of Governors,  the OECD and Commonwealth Treasury.

  

My recent research focusses on housing and monetary policy. 

Most of my work for the CIS is available at https://www.cis.org.au/experts/research-scholars/peter-tulip/

Contact details 

 CV (as of 2020) 

The main purpose of this web page is to provide access to drafts, past research papers and related files.  Here they are in reverse chronological order: 

 RESEARCH PAPERS

Structural Reform of the Reserve Bank of Australia 

• CIS Analysis Paper 36; April 2022
• Abstract: The Reserve Bank of Australia�s (RBA) structure makes mistakes likely. It concentrates responsibility on one fallible individual, the Governor, answerable to a Board of non-experts, with little requirement to explain or defend decisions in detail. Arguments are subject to little scrutiny, either internally or externally. More fundamentally, the RBA has a culture that places a low priority on getting the answers right. As a result, mistakes are frequent, persistent and costly. Among several examples, the RBA recently placed higher priority on stabilising household debt than on its conventional goals of unemployment and inflation. Previously, it targeted the current account deficit.
  To address these problems, more monetary policy experts should be appointed to the RBA Board, and Board members should be individually accountable for their votes. The RBA should be required to be more transparent � in particular, it needs to provide detailed explanations for its decisions and show alternative projections for interest rates. The mandate of the RBA should be limited, to constrain mission creep and bureaucratic discretion.

• An earlier version: Agenda - A Journal of Policy Analysis and Reform: Volume 28, Number 1, 2021

• Economic Society of Australia Panel discussion of the Review of the RBA; 9/5/2022
   

• Open Letter to the Treasurer  30/5/2022

• My column in the AFR, 1/5/2022

• Podcast on Gene Tunny's Economics Explored

• Interview with ABC Weekend Breakfast

• Interview with Ross Greenwood on Business Now
   

The Need for Reform of Land use Policy 

• Submission to the Productivity Commission; 23/3/2022
   
• Abstract: Shifting the Dial (2017) emphasised the planning system�s �red tape�. However, recent research indicates that the more important problem with the planning system is that it restricts the supply of housing, increasing its price. Estimates of this effect in Australian cities are very large. For example, planning restrictions are estimated to raise the cost of the average Sydney apartment by $355,000 or 68%. These estimates are in line with other observations of the Australian housing market and a large body of international research.
  In principle, a large effect on prices would be justified if housing density created large negative externalities. However, attempts to quantify the most commonly cited externalities find them to be unimportant or positive. Of special relevance to this inquiry, allowing people to concentrate together in large dense cities has repeatedly been found to boost productivity, technological progress and wages. The welfare costs of these distortions, in terms of equity, deadweight loss and dynamic losses, are all large. 

 

Misunderstandings about Planning Restrictions

• Download the paper (pdf, 1.2MB, December 2021)
• Executive Summary
• Abstract: Many researchers have found that planning regulations restrict the supply of housing and hence increase its price. This paper discusses some objections to this finding. I argue that most of these objections reflect simple misunderstandings. They are either empirically unrealistic or are not relevant to the view that planning raises prices.

Does high-rise development damage neighbourhood character? (With Zachary Lanigan)

• CIS Policy Paper 40, April 2021
• Abstract: Local residents often oppose new high-rise development apartment buildings on the grounds that they would harm neighbourhood character. This paper suggests these concerns are exaggerated and unrepresentative.  We examine five examples of high-rise development in Sydney: Chatswood, Forest Lodge, Green Square, Liverpool and Turrella and three in Melbourne: Box Hill, South Yarra and Footscray. If these developments harmed neighbourhood character, nearby house prices should fall. But that does not happen. Instead, house prices in each suburb closely track the prices of houses in adjoining suburbs � both before and after the development. This implies that high-rise development apartments have little effect on neighbourhood amenity. 

 

Planning restrictions harm housing affordability

• CIS Policy Paper 33; December 2020
• Abstract: Planning restrictions reduce the supply of housing and hence raise its price.  This paper summarises recent research on this topic, focussing on Australia�s largest cities.
  The severity of planning regulations can be gauged by the difference between sale prices and the costs of supply. This wedge represents what people would pay for the legal right to provide extra dwellings at a location. The wedge, and hence prices, are high because these rights are unnecessarily scarce. For detached houses, costs comprise the dwelling structure and the land that other home-owners need to forego. Planning restrictions are estimated to raise house prices 73 per cent above these costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth. Extra apartments can be supplied by raising the height of new buildings. This increases construction costs but means that extra land does not need to be used. Restrictions are estimated to raise the price of the average new apartment by 68 per cent above costs in Sydney, 20 per cent in Melbourne and 2 per cent in Brisbane. These estimates are in line with a large body of international research which has been thoroughly vetted. 

 The Apartment Shortage (with Keaton Jenner)

 �        RBA Research Discussion Paper, 2020-04, August 2020

�     Abstract:  This paper measures the excess demand for apartments in Australia's largest cities. We estimate that home buyers will pay an average of $873,000 for a new apartment in Sydney though it only costs $519,000 to supply, a gap of $355,000 (68 per cent of costs). There are smaller gaps of $97,000 (20 per cent of costs) in Melbourne and $10,000 (2 per cent of costs) in Brisbane. The large gaps are sustained by planning restrictions. The shortage of apartments is most severe in the inner suburbs of Sydney, where height limits prevent more construction. Elsewhere, restrictions on converting low-density housing to apartments are important. High-rise apartments are a much less costly means of supplying extra housing than the medium-density housing that some planners favour.

�        Non-technical summary

�        Data and programs

�        Press: AFR,SMH,Australian;   

 

Cost-benefit Analysis of Leaning against the Wind (with Trent Saunders) 

�     RBA Research Discussion Paper, 2019-05, July 2019 

�     Abstract:  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. 

�        Data and programs 

�        Press: AFR;  ParliamentaryHearing 9/8/2019 pp9-10

 A Model of the Australian Housing Market  (with Trent Saunders)

 �        Economic Record Vol. 96 S1 June 2020 

�     RBA Research Discussion Paper, 2019-01, March 2019

�     Abstract: 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.

�        Appendices, data and programs

�        Press: Age; Australian;AFR1, AFR2; Guardian 

 The Effect of Zoning on Housing Prices (with Ross Kendall)

�     RBA Research Discussion Paper, March 2018

�     Abstract:  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: 

o   Cato Research Brief in Economic Policy No 124

    o   RBA Research shows that zoning restrictions are driving up housing prices

�  By John Daley, Brendan Coates and Trent Wilshire
theConversation.com, March 8, 2018

�         Responses to Questions

�         Data and programs  

�        Press clips: SMH 9/3/2018 p1; AFR 9/3/2018 p3; Australian9/3/2018 p7

  Anticipatory Monetary Policy and the Price Puzzle(with James Bishop)

�         RBA Research Discussion Paper, May 2017

• Abstract: 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 Hrtgen (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.

�        Data

Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve's Approach (with DavidReifschneider)

�        International Journal of Forecasting, October, 2018

�        FEDS working paper 2017-020

�        RBA Research Discussion Paper, February 2017 

�        Abstract: 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.

  �        Data 

  Okun's Law and Potential Output (with David Lancaster)

 �        RBA Research Discussion Paper, December 2015 

• Abstract: 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 2� to 3� per cent. This is a percentage point or two below estimates from before the mid-1990s.

 �        Data

 

The Effect of the Mining Boom on the Australian Economy

�        RBA Bulletin; December 2014 

• Abstract: 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)

�    RBA Research Discussion Paper; August 2014 

• Abstract: 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)

�        RBA Research Discussion Paper; July 2014

 �        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.

 �        Abstract:  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"

 �        International Journal of Central Banking; June 2014, pp 63-96

   o   Discussion by Johannes F. Wieland

 �        RBA Research Discussion Paper; March 2014 (slightly longer version)

 �        Abstract:  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:

o  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).

   o  FRB/US variable list

 "Estimates of Uncertainty around the RBA's Forecasts" (with Stephanie Wallace)

�        Reserve Bank of Australia, Research Discussion Paper, 2012-07 (link to paper and data)  

�        Abstract: 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)

 �        FEDS working paper 2005-31

�        Data

 Gauging the Uncertainty of the Economic Outlook from Historical Forecasting Errors (with Dave Reifschneider)

• FEDS working paper 2007-60

 �        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

�        CEPR Discussion Paper 574

 "Do minimum wages raise the NAIRU ?"

�        B. E. Journal of Macroeconomics, 2004, Vol. 4: No. 1, Article 7.

�        An ungated link to the paper (400KB pdf )

�        Data

�        FEDS working paper, August 2000 (166KB pdf ) ;  Data  

�        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).

Potential Employment, Chapter 2 of Survey of the United States, 2007

Monetary Policy, Chapter 2 of Survey of Iceland, 2006

Greg Mankiw is impressed by the 2007 US Survey 

  "Polynomial Adjustment Costs in FRB/US" with Flint Brayton and Morris Davis

"Equilibrium unemployment with staggered wages"  Draft of July 2000

Dissertation