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Financial sector amplification and credit cycles in New Zealand

Rebecca Williams, Anella Munro

This article explores some of the channels through which the financial system may amplify business cycles in New Zealand. Such amplification (‘procyclicality’) has been of interest for decades when considering financial booms and crises. There has been particular interest recently in understanding mechanisms through which the financial sector contributed to both the expansion of credit in 2003-07 and the subsequent pressure to reduce leverage during the financial crisis. This article focuses the discussion on New Zealand with emphasis on the credit boom of 2003-07 and the recent fall in credit growth, though the latter has been modest by international standards.