Would Adopting the US Dollar have led to Improved Inflation, Output and Trade Balances for New Zealand in the 1990s?

Motu Working Paper No. 03-14

17 Pages Posted: 13 Jan 2004  

Viv Hall

Victoria University of Wellington - School of Economics & Finance

Angela Huang

Government of New Zealand - Department of Economics

Date Written: September 2003

Abstract

Deterministic simulations with the Reserve Bank of New Zealand's core FPS model show how New Zealand's broad macroeconomic environment might have evolved over the 1990s, if a US nominal yield curve and US TWI exchange rate movements under a common currency arrangement had been experienced. Relatively looser monetary conditions would have prevailed, and led to modest short-run output gains, greater excess demand pressures, noticeably higher CPI inflation rates over the whole of the 1990s, and less favourable trade balance outcomes, especially for the late 1990s. These macroeconomic outcomes are overall less favourable than those obtained from simulating the equivalent Australian monetary conditions.

Keywords: Common currency, monetary policy, deterministic simulation, New Zealand, Australia, United States

JEL Classification: E58, F36, E31, E37, E17

Suggested Citation

Hall, Viv and Huang, Angela, Would Adopting the US Dollar have led to Improved Inflation, Output and Trade Balances for New Zealand in the 1990s? (September 2003). Motu Working Paper No. 03-14. Available at SSRN: https://ssrn.com/abstract=485522 or http://dx.doi.org/10.2139/ssrn.485522

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

Angela Huang

Government of New Zealand - Department of Economics ( email )

2 The Terrace
P.O. Box 2498
Wellington
New Zealand

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