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

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Abstract

We identify the timing of currency, banking crises and sudden stops in New Zealand from 1880 to 2008 using methodologies from the international literature and consider the extent to which the empirical models in that literature 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 Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2009/17.

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Length: 40 p
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:nzb:nzbdps:2009/17

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  1. Barry Eichengreen, Andrew K. Rose, and Charles Wyplosz., 1995. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C95-046, University of California at Berkeley.
  2. 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.
  3. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521898010.
  4. Jonathan Kearns & Ricardo J. Caballero & Kevin Cowan, 2004. "Fear of Sudden Stops: lessons from Australia and Chile," Econometric Society 2004 Latin American Meetings, Econometric Society 185, Econometric Society.
  5. Michael D. Bordo & Christopher M. Meissner & David Stuckler, 2009. "Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View," NBER Working Papers 15534, National Bureau of Economic Research, Inc.
  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. Michael D. Bordo & Alberto F. Cavallo & Christopher M. Meissner, 2007. "Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880-1913," NBER Working Papers 13489, National Bureau of Economic Research, Inc.
  8. 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, New Zealand Treasury 02/26, New Zealand Treasury.
  9. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521725200.
  10. Christopher M Meissner & Michael D Bordo, 2006. "Financial Crises, 1880-1913: The Role of Foreign Currency Debt," WEF Working Papers, ESRC World Economy and Finance Research Programme, Birkbeck, University of London 0002, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  11. Michael D. Bordo & Christopher M. Meissner, 2005. "The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997," NBER Working Papers 11897, National Bureau of Economic Research, Inc.
  12. 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.
  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. 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.
  2. Leung, Charles Ka Yui & Shi, Song & Tang, Edward Chi Ho, 2013. "Commodity house prices," MPRA Paper 49489, University Library of Munich, Germany.
  3. 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.
  4. Yan Sun, 2011. "From West to East," IMF Working Papers, International Monetary Fund 11/120, International Monetary Fund.

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