Reserve Bank of New Zealand Bulletin articles

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March 2006 (Vol. 69, no 1)

Download the complete issue of the March 2006 Bulletin (PDF 667KB)

Articles

Editor's Note (PDF 36KB)

Towards a framework for promoting financial stability in New Zealand (PDF 178KB)

By Leni Hunter, Adrian Orr and Bruce White
Central banks, like the Reserve Bank of New Zealand, make judgements and take actions to promote the stability of the financial system. This involves making decisions in inherently uncertain situations. For example, how is financial stability defined? How can we recognise an imminent financial crisis? And, how is a financial crisis best mitigated or recovered from?
This article presents a step towards a broad conceptual framework for promoting financial system stability and guiding the Bank's policy actions. We argue that the preconditions for financial stability are met when all financial system risks are being adequately identified, allocated, priced and managed. The financial system is made up of markets, institutions, and payments and settlement systems. Financial system risks broadly include credit, liquidity, market and operational risks.
All of the preconditions are important to best ensuring that the financial system is resilient to a wide range of economic and financial shocks, and able to absorb financial crisis losses with least disruption. The preconditions for financial stability also best ensure that the financial system is efficient in its delivery of financial services, and allocating resources throughout the economy.
In making assessments of financial stability, the Reserve Bank does not have a single, well-defined quantitative measure. Instead we draw on a variety of information, practices, and ongoing research. The Bank conducts regular surveillance of financial risks and reports on its assessments in the twice-yearly Financial Stability Report.

Changes in the inflation process in New Zealand (PDF 254KB)

By Bernard Hodgetts
This article is a revised version of a paper prepared for the Bank of International Settlements Central Bank Economists' meeting held in Basel in October 2005. The article describes changes in the inflation process in New Zealand over the past two decades. Over time, inflation seems to have become less responsive to its fundamental determinants, such as excess demand pressures in the economy or variations in the exchange rate than was previously the case. This is partly attributed to the reduction and `anchoring' of inflation expectations that followed the adoption of an inflation targeting framework. Some of the determinants of inflation have also changed in profound ways. Low global inflation and downward pressure on prices from countries such as China has muted New Zealand's inflation rate in recent years. The article notes that wages no longer appear to be a direct driver of inflation in the manner seen in the 1970s and 1980s. Changes in the competitive environment in New Zealand - especially in areas such as retailing - are also considered to have dampened the economy's `inflation response', although there has so far been relatively little empirical work in New Zealand on this topic.

Analysis of revisions to quarterly GDP - a real-time database (PDF 233KB)

By Cath Sleeman
Gross Domestic Product (GDP) is one of the key data series used by the Reserve Bank to inform monetary policy decisions. The measures of GDP, published by Statistics New Zealand (SNZ), are estimates rather than exact figures and may be revised in subsequent releases. Analysis of the most recent measures of GDP should incorporate the extent of uncertainty that surrounds these estimates. To enable a more detailed examination of revision patterns, the Reserve Bank has constructed a real-time database containing each quarterly release of Expenditure GDP (GDP(E)) and its components. The database is available to users on the Reserve Bank's website and will be regularly updated. This article provides an introduction to the database and, by way of example, presents a basic analysis of the revisions made to GDP(E) and its components.

Economic and financial chronology 2005 (PDF 48KB)

By Alex Deans
Significant economic announcements made in the calendar year.

The views expressed are those of individual authors and do not necessarily reflect official positions of the Reserve Bank of New Zealand. Articles published in this Bulletin may not be wholly or substantially reproduced without the permission of the Reserve Bank of New Zealand. Data, brief extracts from articles, and other material appearing in the Bulletin, may be used without restriction provided due acknowledgement is made of the source.