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Comments on: Comparing recessions: Unemployment in New Zealand http://www.tvhe.co.nz/2013/12/05/comparing-recessions-unemployment-in-new-zealand/ The Visible Hand in Economics Thu, 05 Dec 2013 19:03:00 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2013/12/05/comparing-recessions-unemployment-in-new-zealand/#comment-42547 Thu, 05 Dec 2013 19:03:00 +0000 http://www.tvhe.co.nz/?p=10487#comment-42547 In reply to Donal Curtin.

Yar, for my reading of the data it looks strongly like it was largely due to monetary policy trying to break the back of highly anchored inflation expectations. Real interest rates were insanely high in 1989/90 – in fact I can imagine someone arguing that nominal rates should have been cut earlier due to the sharp drop in the inflation rate. Of course, over here the RBNZ responded with gusto to world events – it was good work!

The failure of BNZ didn’t help, but the size of the increase in defaults and low price of non-residential property could partially be put down to monetary policy. On the other side, post Iraq war we did experience quite an oil shock – the relative TOT between then and now is definitely a big difference!

How government policies fit in is a tough one. They likely made the economy more fragile at the time, but unemployment had peaked once we hit Ruthanasia.

In many ways, government institutions (including the RBNZ) did a better job this time then they did in the late 1980s/early 1990s and during the Asian Crisis – we just experienced a much larger external (supply) shock.

]]> By: Donal Curtin http://www.tvhe.co.nz/2013/12/05/comparing-recessions-unemployment-in-new-zealand/#comment-42543 Wed, 04 Dec 2013 20:33:00 +0000 http://www.tvhe.co.nz/?p=10487#comment-42543 Top of head, 87-92 was worse than 08-now because (a) the ’87 NZ share market/property crash was more severe for us as we had one of the world’s largest equity market bubbles deflating (index from 4000 roughly to 1150 roughly, about the same as Japan’s spectacular bust later) (b) we were still wearing the upfront costs of Rogernomics and arguably of Ruthanasia e.g. the ‘mother of all Budgets’ (no similar program 08-now) (c) we had the initial very tough disinflationary monetary policy under the new Reserve Bank Act/inflation targetting regime (monetary policy could afford to be supportive 08-now) (d) there was the ‘Anglo-Saxon recession’ (US, UK, Australia) of 90-91 thrown into the mix, whereas Australia (at least) kept going right through 08-now and (e) I can’t remember exactly how commodity prices were going in 87-92 but I’m pretty sure that whatever they were, they weren’t as good as the current ones

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