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A dynamic computable general equilibrium (CGE) model of the New Zealand economy




This paper documents the structure and key properties of a computable general equilibrium (CGE) model of the New Zealand economy. It is a three-good, small open economy model, which features a well-developed production block. This production block has been estimated as a system using Full Information Maximum Likelihood. Another key feature of the model is that it has a two–tiered structure: the steady-state version of the model and the dynamic version of the model. Using the steady-state version of the model, a macroeconomic balance measure of New Zealand’s equilibrium exchange rate can be derived. Furthermore, the steady–state model provides estimates of potential output, which is used to measure the level of excess demand in the economy. The dynamic model is used to trace the dynamic response of a range of macroeconomic variables to various shocks such as changes to world prices for exports and changes to government policy.

Suggested Citation

  • Kam Leong Szeto, 2002. "A dynamic computable general equilibrium (CGE) model of the New Zealand economy," Treasury Working Paper Series 02/07, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:02/07

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    References listed on IDEAS

    1. Edwards, Sebastian, 1989. "Temporary Terms-of-Trade Disturbances, the Real Exchange Rate and the Current Account," Economica, London School of Economics and Political Science, vol. 56(223), pages 343-357, August.
    2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    3. Sebastian Edwards, 1987. "Tariffs, Terms of Trade, and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account," NBER Working Papers 2175, National Bureau of Economic Research, Inc.
    4. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    5. Alan King, 1998. "Uncovered interest parity: New Zealand' s post-deregulation experience," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 495-503.
    6. Kam Leong Szeto, 2001. "An Econometric Analysis of a Production Function for New Zealand," Treasury Working Paper Series 01/31, New Zealand Treasury.
    7. Wells, Graeme & Evans, Lewis, 1985. "The Impact of Traded Goods Prices on the New Zealand Economy," The Economic Record, The Economic Society of Australia, vol. 61(172), pages 421-435, March.
    8. Svensson, Lars E O, 1999. "Price-Level Targeting versus Inflation Targeting: A Free Lunch?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 277-295, August.
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    Cited by:

    1. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series 02/30, New Zealand Treasury.
    2. Iris Claus & Arthur Grimes, 2003. "Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism: A Critical Review," Treasury Working Paper Series 03/19, New Zealand Treasury.

    More about this item


    Computable general equilibrium model; Equilibrium exchange rate; potential output; Macroeconomic dynamics;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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