مدل چرخه کسب و کار متغیر ساختاری برای یک اقتصاد ناپایدار کوچک باز

New Zealand is a small economy exposed to a volatile climate, relatively volatile international trade prices, and its exposure to international financial markets has increased markedly since economic reforms in the 1980s. This paper applies identification techniques suggested by Cushman and Zha [Cushman, D.O. and Zha T.A., 1997. Identifying monetary policy in a small open economy under flexible exchange rates, Journal of Monetary Economics, 39, pp. 433–448.], Zha [Zha, T.A., (1999). Block recursion and structural vector autoregression, Journal of Econometrics, 90, pp. 291–316.] and Dungey and Pagan [Dungey, M. and Pagan, A., 2000. A structural VAR model of the Australian economy, The Economic Record, 76, pp. 321–342.] to develop a large four block structural VAR model of the New Zealand business cycle to capture these features. The model reveals that climate and international trade price shocks have been more important sources of business cycles fluctuations than international or domestic financial shocks. Furthermore, the model does not encounter the price and exchange rate puzzles that have bedevilled attempts to identify monetary policy shocks in small open economy SVAR models.

This paper develops a structural VAR model to identify the impact and relative importance of international and domestic factors in the New Zealand business cycle since widespread market deregulation. New Zealand is an interesting case study because it has historically been subject to large international commodity price shocks, but since widespread market deregulation in the 1980s (see Evans et al., 1996) it has also become more internationally integrated and more exposed to international financial market shocks. Furthermore, for a developed economy New Zealand has an unusually large primary sector. This feature coupled with heavy reliance on hydroelectricity and a volatile climate means that New Zealand's business cycle is potentially vulnerable to climate shocks. Indeed, New Zealand has displayed more volatile business cycles compared to most other developed economies (see Schmidt-Hebbel, 2006 and Buckle et al., 2004). Unresolved explanations for this volatility have ranged from the influence of international commodity prices, overly aggressive monetary policy, volatile exchange rates, while the “Asian crisis” is a popular explanation for the 1998 recession. The role of climate has been accorded little attention. Since its introduction by Sims (1980), VAR modelling has become a standard empirical method for evaluating the properties of macroeconomic systems (See Blanchard, 2000). Nevertheless, satisfactorily capturing the consequences for the business cycle of New Zealand's open economy and industrial features poses several major modelling challenges. To meet these challenges, the model developed in this paper applies and extends several important VAR modelling techniques developed in recent years. These include procedures suggested by Blanchard and Watson (1986), Bernanke (1986) and Sims (1986) permitting non-recursive structures and the specification of restrictions based on prior theoretical and empirical information, and the block exogeneity procedures introduced by Cushman and Zha (1997), Zha (1999) and Dungey and Pagan (2000). The model presented here has 13 variables, including a wider range of international and domestic variables than have previously been included in New Zealand VAR models and than is typically found in single economy VAR models. The model has four blocks, an international economy block, a terms of trade block, a domestic economy block and a domestic climate block. The international variables and climate are block exogenous and the model includes restrictions on contemporaneous and lagged variables. The use of exogenous variables and sectors has become a more standard procedure in recent years enabling researchers to differentiate between the impacts of shocks from a selection of large economies on a small open economy (Dungey and Fry, 2003), to better understand international linkages and regional dependencies (Dees et al., 2007 and Pesaran et al., 2004), and to understand the relative importance of financial, trade and policy mechanisms by which shocks are transmitted across countries (Artis et al., 2007). The four block structure developed in this paper is another variation on this approach. Interesting results to emerge from the model are as follows. The block exogeneity procedure makes it possible to satisfactorily incorporate a large number of international and domestic variables in SVAR models of small open economies. This procedure has enabled clarification of some ongoing debates concerning some of the principal sources of shocks to New Zealand's business cycle. A particularly interesting insight from the model is that variations in domestic climatic conditions have been a significant source of shocks to New Zealand's business cycle suggesting that climate may warrant more serious attention in international research on business cycles modelling and VAR models of the business cycle. Furthermore, the model does not encounter the price puzzle nor the exchange rate puzzle frequently encountered in small open economy VAR models. The model also generates ‘sensible’ responses by domestic equities to the various shocks. These latter features provide some assurance that the model does a good job at identifying domestic interest rate shocks and that the conclusion drawn from the model that variations in domestic interest rates have not been a major source of shocks to the New Zealand business cycle is reasonably robust. A third interesting conclusion is that despite increased exposure to international financial markets since the economic reforms of the mid-1980s, shocks from these sources have not supplanted the relative importance of international commodity price shocks which have traditionally been regarded as a key source of New Zealand business cycle fluctuations. The remainder of the paper is structured as follows. Section 2 discusses some key New Zealand business cycle modelling issues, the scope of this VAR model and the specification of sectors and identifying restrictions. The next two sections discuss applications. The first set of applications discussed in Section 3 includes the simulation of climate and domestic financial shocks, and international financial and trade shocks. The second set of applications discussed in Section 4 includes historical decompositions (or accounting) of the contributions of these shocks toward booms and recessions in New Zealand's real GDP. Section 5 summarises key conclusions.

The purpose of this paper is to develop a structural VAR model capable of explaining the relative importance of international and domestic shocks to the business cycle for a small and volatile open economy. Using non-recursive structures and the specification of restrictions based on prior theoretical and empirical information and by applying block exogeneity procedures the paper develops a 13 variable structural VAR model that includes a richer array of international trade and financial variables, and of domestic real and financial variables than previously attempted. The model seems to behave broadly as expected in response to various shocks and the results from this paper suggest it is possible to satisfactorily incorporate a large number of international and domestic variables in SVAR models of small open economies. A particularly interesting feature of the model is the importance of the soil moisture deficit variable, included to capture the effect of domestic climate on the New Zealand business cycle. Historical decompositions show that climate has been an important source of business cycles in New Zealand, particularly during the last decade and especially the recessions in 1997/98 and 2001 and slower growth in 2003. In view of its significance for New Zealand, climate may warrant more serious attention in the international research on business cycles and VAR models of business cycles. Another appealing feature of the structural VAR model developed in this paper is that it does not encounter the price puzzle nor the exchange rate puzzle frequently encountered in small open economy VAR models. Moreover, identification has been achieved without resorting to the inclusion of variables in the interest rate reaction function that proxy for other information the central bank might use to forecast future inflation (such as international commodity prices) that several other VAR studies have had to resort to in order to identify monetary policy in a small open economy. We suspect that this feature is due to the wider range of international variables, including international commodity price variables, included in this VAR model. Nevertheless, despite the attention they receive in the popular debate, shocks to interest rates and other domestic financial variables, including the exchange rate and domestic equity prices, have to date not been significant sources of business cycles in New Zealand. Finally we confirm, as postulated by earlier research, that international business cycles and export and import prices fluctuations have been dominant influences on the New Zealand business cycle. Using observations for some 20 years experience in a deregulated environment, we find that despite increased exposure to international financial markets, shocks from these sources have not supplanted the importance of trade price shocks and international business cycle shocks as a source of business cycles in New Zealand.