Reserve Bank of New Zealand Bulletin articles

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December 2011 (Vol. 74, no. 4)

Download the complete issue of the December 2011 Bulletin (PDF 1.2 MB)

Articles

Towards understanding what and when households spent (PDF 915KB)
By Emmanuel De Veirman and Michael Reddell

Household spending is typically the largest component of economy activity. This article sets ot some ways of thinking about what shapes household consumption decisions and looks at New Zealand’s experience over the last decade or so – a period marked by rapid growth in asset prices and debt, and by big swings in economic performance. Large unexpected, but sustained, shifts in incomes appear to have been the biggest influence on total household consumption. Fiscal policy also appears to have played a role. It is less clear that the large increases in asset prices played a substantial role in influencing total household spending.

Sudden stops, external debt and the exchange rate (PDF 889KB)
By David Hargreaves and Elizabeth Watson

New Zealand has accumulated substantial liabilities against the rest of the world reflecting persistent current account deficits over the past 30 years. International evidence suggests that when international creditors become unwilling to continue to fund a country’s external liabilities (a situation known as a ‘sudden stop’), the consequences for an economy can be severe. Adjustment has tended to be more painful and disruptive for countries where debt is foreign currency denominated, or in those without an independently floating national currency. This article argues that a disruption to New Zealand’s access to external funding could be less disruptive due to the country’s freely-floating exchange rate and the fact that the external debt is, in effect, denominated primarily in New Zealand dollars (NZD). The nature of New Zealand’s exports suggests that an exchange rate depreciation would help to adjust New Zealand’s trade balance relatively rapidly, which would assist in placing the country’s net foreign liabilities on a more sustainable path and rebuilding market confidence in New Zealand investments.

Insurer solvency standards – reducing risk in a risk business (PDF 883KB)
By Richard Dean

Significant earthquakes in Christchurch have brought the need for stability in the New Zealand insurance market into sharp focus. The ability of insurance companies to meet claims as they fall due has tremendous potential impact in such circumstances and the need for insurers to hold sufficient capital and other resources for those purposes is more visible in such difficult times. Whether in terms of meeting household claims or those for large businesses, insurance companies have a crucial role to play in rebuilding the lives, communities and economies of those affected. Given the significant potential impact of financial weakness in the insurance sector, regulation of insurers’ financial strength helps to maintain confidence in the sector (a key objective of our prudential role). The Reserve Bank seeks to ensure financial strength by applying solvency standards to insurers carrying on business in New Zealand and these differ depending on the type of insurer. The key components in assessing the financial stability of an insurer are its solvency, capital adequacy and liquidity.

For the Record (PDF 840KB)

Recent discussion papers, news releases and publications from the Reserve Bank of New Zealand

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.