The sensitivity of the New Zealand economy to global developments has been underlined in the Reserve Bank Bulletin.
An article published today examines the current economic expansion since 2009, comparing it with earlier expansions in order to highlight current features.
The current period has unique characteristics. While this economic expansion has in part been shaped by the Canterbury rebuild, the rebuild itself has been less inflationary than the Reserve Bank initially feared. This current expansion also includes the largest net immigration cycle (as a share of working age population) since at least the late 1970s, but the consequences for inflationary pressure appear more muted than in the past.
Productivity growth has been weak, consistent with the continued decline in the estimated neutral interest rate since the Global Financial Crisis. The Reserve Bank has also found that household consumption appears less responsive to increased housing wealth than during the previous expansionary period.
Some of the features presented in the article have simply been revealed with the passage of time, and some reflect the Reserve Bank’s evolving understanding of how the economy operates. That the Reserve Bank has been confronted with such developments or challenges to our understanding is an enduring feature of the environment in which monetary policy operates. Studies of the kind published today provide valuable insight for the Reserve Bank’s on-going understanding of an evolving economy, enabling policy to adjust as quickly as possible to new information.
External Communications Adviser
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