Working Paper: NBER ID: w16027
Authors: Michael D. Bordo; David Hargreaves; Mizuho Kida
Abstract: We identify the timing of currency, banking crises and sudden stops in New Zealand from 1880 to 2008, and consider the extent to which empirical models 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.
Keywords: global shocks; economic growth; financial crises; New Zealand
JEL Codes: G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US growth rate (N12) | New Zealand's economic growth (O56) |
| terms of trade (F14) | New Zealand's economic growth (O56) |
| domestic crises (H12) | New Zealand's economic growth (O56) |
| global economic cycles (F44) | New Zealand's economic growth (O56) |