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Global shocks, economic growth and financial crises: 120 years of New Zealand experience

Published online by Cambridge University Press:  24 October 2011

Michael Bordo ,
David Hargreaves  and
Mizuho Kida
Michael Bordo
Affiliation:
Rutgers University and NBER, [email protected]
David Hargreaves
Affiliation:
Reserve Bank of New Zealand, [email protected]
Mizuho Kida
Affiliation:
World Bank, [email protected]
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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 substantial 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

financial crisisNew Zealand

JEL classification

G01: Financial Crises
Type
Articles
Information
Financial History Review , Volume 18 , Issue 3 , December 2011 , pp. 331 - 355
Copyright
Copyright © European Association for Banking and Financial History e.V. 2011

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