The Great Moderation was a global phenomenon marked by stable economic growth and inflation. However, there is still an ongoing debate on whether it was good policy or good luck that contributed to its success. This paper examines the recent macroeconomic history of New Zealand through the lens of a regime-switching structural vector autoregression model to understand the contributions of monetary policy and global conditions to its macroeconomic stabilization. The regime-switching framework is a well-suited methodology to study this question since a change in luck can be modeled as a change in shock variances, and a policy change can be modeled as a change in the coefficients of the policy equation. For identification purposes, the small open economy structure of New Zealand is shown to be an advantage.
|Author:||Omer Faruk, Akbal|
|No. of pages:||61|