The boosted HP (bHP) trend filter iterates the standard HP filter until the resulting trend deviation is free of any stochastic trend with the latter determined by suitable stopping rules. Here the performance and properties of the bHP trend filter for growth cycle analysis are considered based on the time-invariant moving-average representation of the bHP filter in the body of the series. We propose alternative trend selection criteria based on a constant cut-off frequency and maximising sharpness. We find there is a strong case for selecting a bHP trend filter with an 8-year rather than a 10-year cut-off period, and that using a bHP filter with 2 iterations (twicing) or a sharpened HP filter is preferable to using the standard HP filter.

Download This Paper Open PDF in Browser Add Paper to My Library Share: Permalink Using these links will ensure access to this page indefinitely Copy URL Copy DOI

To examine changes in the nature of the business cycle and its interaction with monetary policy we estimate a small open economy New Keynesian model using two time periods, one prior to the Global Financial Crisis (GFC) of 2007–2009 and one post the financial crisis. The model has the standard features of sticky prices and monopolistic competition. To fit the data the model also allows for households with a degree of habit persistence and a proportion of firms whose pricing decisions are simply to index to past inflation. Our results indicate the main difference pre- and post-GFC is that the economy has become less interest rate sensitive. Therefore, to stabilize the output and inflation, monetary policy actions need to be stronger than they were prior to the GFC. Moreover, the reduction in neutral interest rates post-GFC has resulted in additional transitional dynamics that have lowered inflation and output.

Within a New Zealand business cycle context, we assess whether Hamilton’s (H84) OLS regression methodology produces stylised business cycle facts which are materially different from HP1600 measures, and whether using the H84 predictor and other forecast extensions improves the HP filter’s properties at the ends of series. In general, H84 produces exaggerated volatilities and less credible trend movements during key economic periods so there is no material advantage in using H84 de-trending over HP1600. At the ends, the forecast-extended HP filter almost always performs better than the HP filter with no extension which performs slightly better than H84 forecast extension.

We examine the question of whether the rate of business insolvencies in New Zealand is related to overall macroeconomic conditions. In particular, our interest is in whether the rate of business insolvencies changed in the wake of the Global Financial Crisis (GFC). We find that there was a large increase in insolvencies in New Zealand following the onset of the GFC in 2008. We also find that the timing of the change did not occur uniformly over the country but occurred at different times in four key regional centres. Sharply rising relative costs were the most important macroeconomic factor influencing corporate insolvencies in New Zealand, Auckland, Waikato and Wellington, but have been immaterial in determining New Zealand’s total personal insolvencies. It is employment growth and house price inflation that have been significant in explaining total personal insolvencies

We examine the question of whether the rate of business insolvencies in New Zealand is related to overall macroeconomic conditions. In particular, our interest is in whether the rate of business insolvencies changed in the wake of the Global Financial Crisis (GFC). We find that there was a large increase in insolvencies in New Zealand following the onset of the GFC in 2008. We also find that the timing of the change did not occur uniformly over the country but occurred at different times in four key regional centres. Sharply rising relative costs were the most important macroeconomic factor influencing corporate insolvencies in New Zealand, Auckland, Waikato and Wellington, but have been immaterial in determining New Zealand's total personal insolvencies. It is employment growth and house price inflation that have been significant in explaining total personal insolvencies.

We assess the robustness of stylised business cycle facts for contemporary New Zealand, traditionally computed from HP1600 trend-filtered data. The merits of these HP1600 estimates are considered, relative to those computed from two loess (local regression) trend filtering methods, one (loess11) chosen to exhibit greater fidelity and the other (loess47) to show more pronounced smoothness. The robustness of our key business cycle facts is further evaluated in terms of simple robust standard error estimates of measures of time-invariant volatility and correlation. Time-varying estimates of these quantities are also investigated. Statistically significant bivariate correlations are established for key real expenditure variables, labour market, fiscal and monetary policy, and some inflation variables, with almost all loess47 absolute magnitudes being somewhat greater than HP1600 magnitudes. Their pro- or counter-cyclicality and their lead/lag relationships are robust across HP1600 and loess47 trend filtering, though not for CPI and non-tradables price level variables.

We present preferred classical business cycle turning points for New Zealand's post-Second World War economy, using the Bry-Broshan dating algorithm on a long term quarterly time series of real GDP. From these, we identify nine recessions and their associated recovery paths for a period approaching 70 years and provide evidence on their key characteristics. Two key specific findings are as follows: (1) on average, real GDP and employment cycles have been associated around 90 per cent of the time and (2) the strength of New Zealand's business cycle recoveries has been independent of the depth, duration, or severity of the preceding recession.

We present new empirical evidence on trend robustness and end-point issues, utilising the macroeconomic data set investigated in McKelvie and Hall (2012). We consider the relative merits of non-robust Hodrick-Prescott (HP) and robust loess (LOcal regrESSion) trend filtering methods, and assess the sensitivity of HP1600 stylised facts to (i) the considerable “supply shock” deviations from trend associated with New Zealand’s 1992 power crisis, and (ii) an alternative HP100 specification and the loess approach. On end-point issues, we assess value-added from the use of seven-point triangular moving average and HP1600 filters, relative to insights from a 21-quarter uniform moving average filter.

This paper introduces contributions made to a June 2011 policy forum, sponsored by the New Zealand Treasury, the Reserve Bank of New Zealand and Victoria University of Wellington. The forum focused on New Zealand's macroeconomic imbalances and possible policy responses. Here we provide an overview of these macro imbalances and summarize the main ideas presented later in this issue.

We use unobserved components methodology to establish an Australasian common cycle, and assess the extent to which region-specific cycles of Australian states and New Zealand are additionally important. West Australian and New Zealand region-specific growth cycles have exhibited distinctively different features, relative to the common cycle. For every Australasian region, the region-specific cycle variance dominates that of the common cycle, in contrast to findings for US BEA regions and prior work for Australian states. The distinctiveness of New Zealand's output and employment cycles is consistent with New Zealand retaining the flexibility of a separate currency and monetary policy, for periods when significant region-specific shocks occur.

We use unobserved components methodology to establish a New Zealand common cycle from economic activity data for 14 regions, and to assess the extent to which the region-specific cycles are additionally important. We then aggregate the 14 regions to 5 regions, and estimate a similar common cycle. At this level of aggregation, we can assess the statistical significance and relative strengths of influence on the common cycle of monetary and fiscal policy variables and several external shock variables. Our results show that structural breaks associated with New Zealand's major economic policy reforms of the mid-1980s through to the early 1990s play an important role, and that New Zealand's region-specific growth cycles have exhibited considerable diversity. The variance contributions of region-specific cycles dominate common-cycle contributions, a result consistent with multivariate findings for Australasia, but contrary to evidence for the US and for Australian states. We also establish that during key periods, terms of trade and net immigration variables have had distinctive procyclical influences on the common cycle, that real government expenditure has had a modest crowding-out role, and that monetary policy has had no additional significant influence.

Our paper is in the spirit of Rex Bergstrom's interests and research in cyclical growth models and his meticulous attention to underlying data series. We develop a new quarterly real GDP series for post–World War II New Zealand, derive a new “benchmark” set of classical business cycle turning points, and establish nonparametric classical cycle characteristics. Markov-switching models, estimated by Gibbs-sampling methods, are used to derive mean growth rate and volatility regimes and to add to existing knowledge. The resulting properties, involving cycle asymmetries, volatility, diversity and duration dependence, and differing mean growth rate and volatility regimes, can be used to underpin a next generation of cyclical growth models for New Zealand, in the Bergstrom tradition.

There are no official quarterly real GDP estimates for New Zealand for the period prior to 1977. We develop a seasonally adjusted series for 1947q2 to 2006q2, by linking quarterly observations from two recent official series to temporally disaggregated observations for an earlier time period. Annual real GDP series are disaggregated, using the information from two quarterly diffusion indexes, developed by Haywood and Campbell (1976). Three econometric models are used: the Chow and Lin (1971) model that disaggregates the level of GDP; and the Fernández (1981) and Litterman (1983) models that disaggregate changes in GDP. Statistical properties of the series are evaluated, and movements in the new series are benchmarked against qualitative research findings from New Zealand's post-WWII economic history. Our preferred quarterly series is based on results generated from the Chow-Lin model.

We use National Bank of New Zealand Regional Economic Activity data, to identify and characterise classical business cycle turning points, for New Zealand's 14 regions and aggregate New Zealand activity. Using Concordance statistic measures, logistic model and GMM estimation methods, meaningful regional business cycles have been identified and a number of significant associations established. All regions exhibit cyclical asymmetry for both durations and amplitudes, and synchronisations between aggregate NZ activity and each region are contemporaneous. The regional cycles rarely die of old age but are terminated by particular events. The regions most highly synchronised with the NZ activity cycle are Auckland, Canterbury, and Nelson-Marlborough; those least so are Gisborne and Southland. Noticeably strong co-movements are evident for certain regions. Geographical proximity matters, and unusually dry conditions can be associated with cyclical downturns in certain regions. There is no discernable evidence of association with net immigration movements, and no significant evidence of regional cycle movements being associated with real national house price cycles. The agriculture-based nature of the New Zealand economy is highlighted by the strong influence of external economic shocks on rural economic performance. In particular, there is considerable evidence of certain regional cycles being associated with movements in New Zealand's aggregate terms of trade, real prices of milksolids, real dairy land prices and total rural land prices.

This paper identifies the expansion and contraction phases of New Zealand's national and regional house prices, by employing techniques typically used to study cycles in real activity, the so-called Classical cycle dating method. We then enquire into the nature of the cycles, addressing five questions: (1) What are the New Zealand and regional house price cycles, and do the regional cycles differ from the national cycle?; (2) What are the typical durations, magnitudes and shapes of these house price cycles?; (3) Do cycles in house prices match cycles in economic activity, at either national or regional levels?; (4) Does it matter which of the two main sets of house price series are used? i.e. Quotable Value New Zealand (QVNZ) or Real Estate Institute of New Zealand (REINZ)?; and (5) Does the sample period matter? Findings are evaluated in the context of work by Grimes, Aitken and Kerr (2004), and Hall and McDermott (2005). Avenues for further research are suggested.

The current economic expansion is one of the more enduring in New Zealand’s post-war period. We examine New Zealand’s post-war business cycles for the sample period 1946q1 to 2005q4, using Classical Cycle methods. The non-parametric Bry and Boschan (1971) algorithm is used to date the Classical cycle, and for the early part of the period, these turning points are supplemented by a substantially Judgemental set derived from a number of secondary sources (Haywood, 1972; Haywood and Campbell, 1976; Easton, 1997). Key Classical cycle characteristics, including cycle asymmetries and volatilities, are established. Markov-Switching models, estimated by maximum likelihood (Hamilton, 1989) and by Gibbs-sampling methods (Kim and Nelson, 1999), are then used to derive mean growth rate and volatility regimes, and to draw implications. Results point to a return to a more rhythmic pattern of long expansions and short contractions, after that pattern was interrupted following the oil shocks of the 1970s and New Zealand’s reforms of the mid- to late-1980s and early 1990s. More rhythmic patterns should not be mistaken for a predetermined pattern, as tests show that cycles do not age. This, together with the observation that rates of growth are not dissimilar across the more sustained expansion phases, implies that in order to enhance New Zealand’s prosperity, policies are required that extend business cycle expansions without allowing the excesses that undermine those expansions to build up.