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Global shocks, economic growth and financial crises: 120 years of New Zealand experience

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  • Michael D. Bordo
  • David Hargreaves
  • Mizuho Kida

Abstract

We identify the timing of currency, banking crises and sudden stops in New Zealand from 1880 to 2008, and consider the extent to which empirical models can explain New Zealand’s crisis history. We find that the cross country evidence on the determinants of crises fits New Zealand experience reasonably well. A number of the risk factors that correlate with crises internationally–such as domestic imbalances, external debt, and currency mismatches–were elevated for New Zealand when the country had more frequent crises and have improved in the recent (more stable) period. However, a time-series analysis of New Zealand growth over 120 years shows that global factors–such as the US growth rate and terms of trade–explain New Zealand growth fairly well, and that crisis dummy variables do not have significant additional explanatory power. This suggests that having sound institutions and policies may help avoid severe domestic crises, but will not be sufficient to avoid the domestic economic impact of the global business cycle.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16027.

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Date of creation: May 2010
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Publication status: published as Bordo, Michael & Hargreaves, David & Kida, Mizuho, 2011. "Global shocks, economic growth and financial crises: 120 years of New Zealand experience," Financial History Review, Cambridge University Press, vol. 18(03), pages 331-355, December.
Handle: RePEc:nbr:nberwo:16027

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  1. Michael D. Bordo & Christopher M. Meissner, 2007. "Financial Crises, 1880–1913: The Role of Foreign Currency Debt," NBER Chapters, in: The Decline of Latin American Economies: Growth, Institutions, and Crises, pages 139-194 National Bureau of Economic Research, Inc.
  2. Ricardo Caballero & Kevin Cowan & Jonathan Kearns, 2004. "Fear of Sudden Stops: Lessons from Australia and Chile," NBER Working Papers 10519, National Bureau of Economic Research, Inc.
  3. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1994. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1060, C.E.P.R. Discussion Papers.
  4. Michael D. Bordo & Christopher M. Meissner, 2007. "Foreign Capital and Economic Growth in the First Era of Globalization," NBER Working Papers 13577, National Bureau of Economic Research, Inc.
  5. Christopher M Meissner & Michael D Bordo, 2006. "The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997," WEF Working Papers, ESRC World Economy and Finance Research Programme, Birkbeck, University of London 0001, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  6. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 16(32), pages 51-82, 04.
  7. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," NBER Working Papers 13761, National Bureau of Economic Research, Inc.
  9. Bordo, Michael D. & Cavallo, Alberto F. & Meissner, Christopher M., 2010. "Sudden stops: Determinants and output effects in the first era of globalization, 1880-1913," Journal of Development Economics, Elsevier, Elsevier, vol. 91(2), pages 227-241, March.
  10. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521898010.
  11. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521725200.
  12. Michael Bordo & David Stuckler & Chris Meissner, 2009. "Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View," Working Papers, University of California, Davis, Department of Economics 921, University of California, Davis, Department of Economics.
  13. Michael Reddell & Cath, Sleeman, 2008. "Some perspectives on past recessions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 71, June.
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Cited by:
  1. Leung, Charles Ka Yui & Shi, Song & Tang, Edward Chi Ho, 2013. "Commodity house prices," MPRA Paper 49489, University Library of Munich, Germany.
  2. Adrian Pagan & Don Harding, 2011. "Econometric Analysis and Prediction of Recurrent Events," NCER Working Paper Series, National Centre for Econometric Research 75, National Centre for Econometric Research.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 339-44, May.
  4. Yan Sun, 2011. "From West to East," IMF Working Papers 11/120, International Monetary Fund.

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