The New Zealand Business Cycle

C. John McDermott

Reserve Bank of New Zealand

Viv Hall

Victoria University of Wellington - School of Economics & Finance

August 2006

The current economic expansion is one of the more enduring in New Zealand’s post-war period. But is this a change from past behaviour? We examine New Zealand’s post-war business cycles for the sample period 1946 to 2005, using a newly developed 60-year quarterly time series for real GDP. The non-parametric Bry and Boschan (1971) algorithm is used to derive Classical business cycle turning points, and to underpin the establishment of key cycle characteristics. The latter include cycle asymmetries, volatility, diversity and degree of duration dependence. Markov-switching models estimated by Gibbs-sampling methods (Kim and Nelson, 1999), are then used to derive mean growth rate and volatility regimes, and to draw implications. Results point to a return to a more rhythmic pattern of long expansions and short contractions, after that pattern was interrupted following the oil shocks of the 1970s and New Zealand’s reforms of the mid- to late-1980s and early 1990s. More rhythmic patterns should not be mistaken for a predetermined pattern, as duration test results show that cycle expansion paths do not age. This, together with the observation that rates of growth are not dissimilar across the more sustained expansion phases, implies that in order to enhance New Zealand’s prosperity, policies are required that extend business cycle expansions without allowing the excesses that undermine those expansions to build up.

Keywords: New Zealand, Business Cycle, Economic Expansion, Post-war, Reform

JEL Classification: E32, R12

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Date posted: January 14, 2010  

Suggested Citation

McDermott, C. John and Hall, Viv, The New Zealand Business Cycle (August 2006). Available at SSRN: https://ssrn.com/abstract=1536241

Contact Information

C. John McDermott
Reserve Bank of New Zealand ( email )
2 The Terrace
P.O. Box 2498
Wellington, 6011
New Zealand
Viv Hall (Contact Author)
Victoria University of Wellington - School of Economics & Finance ( email )
P.O. Box 600
Wellington, 6140
New Zealand
HOME PAGE: http://www.vuw.ac.nz/sef/pages/staff/VivHall
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