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Calm after the storm? Supply-side contributions to New Zealand's GDP volatility decline

  • Robert Buckle
  • David Haugh
  • Peter Thomson

The variance of New Zealand's real GDP has fallen by a third since the mid 1980s. Decomposing the variance of chain-weighted estimates of production-based real GDP growth since 1977 into sector shares, sector growth rate variances and co-variances, this paper concludes that the principal reason for the decline in GDP volatility is a fall in the sum of sector variances. This is due to declining variances for Services and Manufacturing production growth. Sector co-variances have had a dominant influence on the profile of GDP volatility and this influence has not diminished. Despite marked changes in sector shares, notably increases in Services and Primary sector shares and a decrease in the share of Manufacturing, this has not been a factor influencing the decline in GDP volatility. We postulate that policy interventions such as “Think Big”, regulatory interventions during the early 1980s, and the introduction of GST are key explanations for the higher volatility until the mid 1980s. Cessation of these policy interventions and responses to deregulation of several Services and Manufacturing industries after the mid 1980s appear to be important factors contributing to the decline in New Zealand GDP volatility since the mid 1980s.

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Article provided by Taylor & Francis Journals in its journal New Zealand Economic Papers.

Volume (Year): 37 (2003)
Issue (Month): 2 ()
Pages: 217-243

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Handle: RePEc:taf:nzecpp:v:37:y:2003:i:2:p:217-243
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