New Zealand's risk premium

Craig Burnside

New Zealand Economic Papers, 2013, vol. 47, issue 1, 27-52

Abstract: Interest rates in New Zealand are generally higher than in other industrialized economies. Do these higher interest rates imply lower investment and slow growth? I find that high interest rates in New Zealand, through much of the inflation targeting period, appear to have represented compensation for the risk of rare and extreme events, during which the New Zealand dollar was expected to depreciate. Similar factors appear to explain Australia's risk premium, yet Australia has had a higher level of investment and stronger growth. Therefore, I attribute the differing economic performance of the two countries to other structural differences.

Date: 2013
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DOI: 10.1080/00779954.2012.721690

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