Provided by: Trinity College Dublin
Date Added: Sep 2011
This paper has emphasized that New Zealand's external imbalances should influence the design and conduct of its macroeconomic policies. In terms of growth performance, excessive external deficits limit the size of the tradables sector and thereby constrain productivity growth. In terms of stability, a large stock of external liabilities leaves New Zealand exposed to disruptive financial shocks. Although it is hard to attach a probability to these shocks, a prudential approach to policymaking requires putting substantial weight on low-probability but high-impact scenarios.