The Impact of Traded Goods Prices on the New Zealand Economy

Recent empirical work in Australia and New Zealand reveals a diversity of estimates of the dynamic response to changes in traded goods prices. Similarly, there is conflicting evidence as to whether relative purchasing power parity is a characteristic of models estimated from data. In this paper it is argued that a reduced form approach to empirical modelling is appropriate for New Zealand's particular circumstances. The resulting model is simulated in a novel way, with results that argue against the use of a simple traded/non‐traded goods distinction in the analysis of foreign price impacts on New Zealand. Purchasing power parity is, however, consistent with the results.