Fiscal policy and the external accounts : a New Zealand analysis

Abstract

This thesis presents a New Zealand analysis, at the aggregate level, of the impact of fiscal policy on the external accounts. The theme of this research is to disclose a new method of formulating the balance of payments. There are seven chapters. The initial four chapters investigate and review: the background of the economic problem; approaches to balance of payments analysis; the state of New Zealand's balance of payments; and the impact of fiscal policy in New Zealand. The final three chapters: review previous analytical models; develop a simultaneous equation policy simulation model; and use the model to analyse the inter-relationships between Government expenditure, its consequent financing and impact upon both the private and the Government sectors' net current account position. The thesis highlights the impact of the Government's invisibles deficit, resulting from increased external borrowing, on the external current account. The major conclusion is that fiscal policy should not be used to insulate the economy from fluctuations in the external accounts, especially when financed by external borrowing.