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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. 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.
  2. 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.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  4. Ricardo J Caballero & Kevin Cowan & Jonathan Kearns, 2004. "Fear of Sudden Stops: Lessons from Australia and Chile," RBA Research Discussion Papers, Reserve Bank of Australia rdp2004-03, Reserve Bank of Australia.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521725200.
  10. Michael Reddell & Cath, Sleeman, 2008. "Some perspectives on past recessions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, June.
  11. 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.
  12. 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.
  13. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521898010.
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Cited by:
  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  2. Leung, Charles Ka Yui & Shi, Song & Tang, Edward Chi Ho, 2013. "Commodity house prices," MPRA Paper 49489, University Library of Munich, Germany.
  3. Adrian Pagan & Don Harding, 2011. "Econometric Analysis and Prediction of Recurrent Events," CREATES Research Papers 2011-33, School of Economics and Management, University of Aarhus.
  4. Yan Sun, 2011. "From West to East," IMF Working Papers 11/120, International Monetary Fund.

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