Reserve Bank of New Zealand Bulletin articles – December 2007
All articles are in Adobe Acrobat PDF format. You can download the free Acrobat PDF reader from the Adobe website.
Editor’s Note (PDF 79KB)
Lessons learned from the Economics Department's research work on household balance sheets and related issues (PDF 161KB)
Over the last three years, the Economics Department has undertaken a range of research regarding the financial position of households. This article provides an overview of this research. The work was largely motivated by concerns about: rising household debt, an apparent decline in household saving, and rising house prices. Each of these issues can have consequences for financial stability and the economic cycle, and hence are of vital interest to the Reserve Bank.
Household saving – the difference between household disposable income and household consumption – has declined over the last two decades and now appears to be negative. On the other hand, household wealth has risen. This has been due to rises in house prices, which have pushed up the equity held by households in residential property. While a downward trend in household saving is evident across many developed countries, New Zealand’s household saving rate has been among the lowest, or the lowest, for much of the last 20 years. Also, New Zealand households have lower levels of wealth than households in Australia, Canada, the UK and the US. While New Zealanders’ wealth in housing, as a proportion of disposable income, is around the same as for these other countries, it seems that on average New Zealand households own less financial wealth (e.g. shares and bonds).
In view of this pattern, the Economics Department of the Reserve Bank decided to undertake a small-scale exploratory study of households’ attitudes to various forms of investment. The idea behind this work was to get a view, from a sociological perspective rather than an economic perspective, on why wealth in New Zealand is held in the way it is. This perspective contributes to the Economic Department’s ongoing programme of work on the financial position of households.
Microeconomic analysis of household expenditures and their relationship with house prices (PDF 95KB)
The use of microeconomic data sources can provide important insights into how household and firm behaviour influence developments in the economy. This article summarises some of the key features of household surveys produced by Statistics New Zealand, including the Household Economic Survey (HES). It then outlines recent work by the Reserve Bank that uses data from the HES to analyse various hypotheses for why a positive correlation exists between house prices and consumer spending. Findings suggest this positive correlation is evident for various age groups of householders, and for households living in rented accommodation as well as for owner-occupiers. There is some evidence of a wealth effect for older householders, with the pick-up in household expenditures for this group since the late 1990s occurring during a period of sizeable house price rises.
The MONIAC hydraulic computer is an example of a mechanical economic model dating to the 1940s. This article introduces the MONIAC and its creator, New Zealand economist Bill Phillips. Although the MONIAC is not used for policy analysis at the Reserve Bank, large-scale, practical macroeconomic modelling has long been part of our research and policy effort. Our modelling has evolved considerably in the nearly 40 years since macroeconomic modelling was introduced in the Bank, reflecting developments in economic theory and understanding of the New Zealand economy as it changes over time. In no small part, the improvement has been facilitated by the enormous increase in computing power in the decades since MONIAC was developed. The only working MONIAC in the Southern hemisphere is on display in the Reserve Bank Museum, on long-term loan from the New Zealand Institute of Economic Research (NZIER).
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.