External Imbalances in an Advanced, Commodity-Exporting Country: The Case of New Zealand / Sebastian Edwards.

Format:

Book

Author/Creator:

Edwards, Sebastian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12620.

NBER working paper series no. w12620

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

External Imbalances in an Advanced, Commodity-Exporting Country

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

During the last three years New Zealand has faced increasingly large external imbalances. The current account deficit has increased from 4.3% of GDP in 2003 to almost 9.0% of GDP in 2005. During the same period the country's net international investment position (NIIP) went from a negative level equivalent to 78.5% of GDP to negative 89% of GDP. In this paper I analyze the potential consequences of New Zealand's external imbalances. More specifically, I investigate what is the probability that New Zealand will undergo a costly adjustment characterized by an abrupt and large current account reversal. I find that to an important extent the (very) negative NIIP and (very) large current account deficit may be explained by New Zealand's very close economic relationship with Australia. The econometric results suggest that the rapid growth in the deficit during the last few years has (greatly) increased New Zealand's vulnerability to "contagion." It has also increased the advantage of the country's current floating exchange rate regime.

Notes:

Print version record

October 2006.