The Impact of Commodity Price Movements on the New Zealand Economy
We estimate the macroeconomic effects of changes in commodity prices on the New Zealand economy. Our analysis suggests that an increase in commodity prices has similar characteristics to demand driven macroeconomic fluctuations. GDP expenditure subcomponents such as consumption and investment tend to rise in response to higher commodity prices. Business investment appears to respond more than consumption, highlighting its importance in the transmission of a commodity price movements. In line with higher demand pressures, non-tradable inflation is estimated to increase persistently. We find that the real exchange rate appreciates, and tradable inflation decreases accordingly. Possibly due to the divergent patterns of tradable and non-tradable inflation, the interest rate does not respond to higher commodity prices in the very short-run but is estimated to increase over longer horizons.