New Zealand: Selected Issues

May 14, 2024

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Format: Chicago

New Zealand: Selected Issues, (USA: International Monetary Fund, 2024) accessed November 21, 2024

Summary

This Selected Issues paper investigates why New Zealand’s inflation is higher and further from target than comparator economies considering two main hypotheses: (1) the persistence of pandemic era shocks, and (2) strong migration inflows fuelling demand. The paper finds that, like in many advanced economies, expansionary fiscal and monetary policy, high global commodity prices, exchange rates, and high maritime transport costs all fed into higher inflation. However, unique for New Zealand, the delayed reopening of the economy likely caused a postponed demand shock relative to similar economies. Results show that the impact of these shocks decay rapidly over time, suggesting positive short-term inflation dynamics. With an eye for what lies ahead, the paper finds that large migration waves are associated with short-run increases in inflation, but that these effects are relatively modest and no longer significant after four years. Instead, the long-run dynamics show evidence that migration can lead to significant long-term gains to productivity, output, and capital growth. Countries with tight labor markets exhibit similar patterns to those without, except the inflationary effects of migration dissipate faster.

Subject: Climate policy, Environment, Greenhouse gas emissions, Inflation, International organization, Labor, Labor markets, Migration, Monetary policy, Population and demographics, Prices

Keywords: Climate goal, Climate policy, Global, Greenhouse gas emissions, Impulse response, Inflation, Labor markets, Migration, Net migration trend, PPI inflation, Supply and demand demand shock

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Country Report No. 2024/123
Stock No:

1NZLEA2024002
ISBN:

9798400275302
ISSN:

1934-7685

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