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Our economic model explained

Our economic model is intended to illustrate how New Zealand's economy works and provide a framework for our economists to think about what is happening within it and where the economy and inflation may be heading next.It shows the total amount of goods and services produced in the economy, or our gross domestic product.

Economists feed data and other information into the model and then use their economic judgement and experience to consider how different parts of the economy might be affected in various scenarios. For example, if households start saving more or businesses start investing less.

The information the model produces feeds into our economic forecasts and monetary policy decisions. It is also used in carrying out research.

The monetary policy dial

The monetary policy dial is our tool for affecting the cost of borrowing money in New Zealand. We turn this up or down to:

  • change interest rates
  • help keep prices within the economy stable
  • keep employment near the maximum sustainable level.

* This is a simplified and stylised depiction of our economic model. It is not a fully accurate representation of the elements and connections included in the model.