The Rugby World Cup is putting the media spotlight on New Zealand. The New Zealand macroeconomic experience is fascinating – very similar to Ireland in some respects but also with major differences in terms of its exchange rate and banking-sector policies. In this new paper, I examine the New Zealand situation, with a particular focus on its external imbalances.
This paper argues that large external imbalances pose significant macroeconomic risks for New Zealand. While New Zealand has coped well in recent years, the global financial crisis has underlined the vulnerability of deficit countries to financial shocks. New Zealand can draw important lessons from the global crisis by adjusting its macroeconomic policy framework to further mitigate the risks embedded in its international balance sheet.