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Business cycle accounting for New Zealand

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  • Thakshila Gunaratna
  • Robert Kirkby

Abstract

Business cycle accounting is performed to identify the kinds of macroeconomic models that best explain economic fluctuations in New Zealand. We estimate four wedges and then create counterfactuals to distinguish the wedges that are important in accounting for fluctuations. The labour wedge plays the main role in explaining output and hours worked, while the net export wedge remains largely irrelevant. An existing equivalence result relates different kinds of macroeconomic dynamic stochastic general equilibrium models to the different wedges. Models that incorporate foreign shocks in the standard manner are equivalent to the wedge relating to net exports. The implication is that while foreign shocks may be important in explaining New Zealand's economic fluctuations, macroeconomists need to move away from modelling them in ways that work via the net export wedge.

Suggested Citation

  • Thakshila Gunaratna & Robert Kirkby, 2018. "Business cycle accounting for New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(2), pages 131-149, May.
    • Handle: RePEc:taf:nzecpp:v:52:y:2018:i:2:p:131-149
    DOI: 10.1080/00779954.2016.1252941
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    Cited by:

    1. Funke, Michael & Kirkby, Robert & Mihaylovski, Petar, 2018. "House prices and macroprudential policy in an estimated DSGE model of New Zealand," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 152-171.
    2. Funke, Michael & Kirkby, Robert & Mihaylovski, Petar, 2018. "House prices and macroprudential policy in an estimated DSGE model of New Zealand," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 152-171.
    3. Suzuki, Tomoya, 2021. "Basic income, wealth inequality and welfare: A proposed case in New Zealand," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 118-128.

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