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A Comparison of the NZTM and FPS Models of the NZ Economy - WP 03/25

Publication Details

  • A Comparison of the NZTM and FPS Models of the NZ Economy
  • Published: Sep 2003
  • Status: Current
  • Authors: Gardiner, Paul; Gray, Richard; Hargreaves, David; Szeto, Kam Leong
  • JEL Classification: E10; E17; E63
  • Hard copy: Available in HTML and PDF formats only.

A Comparison of the NZTM and FPS Models of the NZ Economy

New Zealand Treasury Working Paper 03/25

Published: September 2003

Authors: Kam Leong Szeto, Paul Gardiner, Richard Gray and David Hargreaves


This paper investigates and compares the dynamic properties of the New Zealand Treasury model (NZTM) and the current version of the Reserve Bank’s Forecasting and Policy System model (FPS). The main use of both models is to produce macroeconomic forecasts. The NZTM model produces forecasts that are used as an input into the final forecast numbers presented in the Economic and Fiscal Updates. The FPS model is used to produce the published forecasts in the Reserve Bank’s quarterly Monetary Policy Statement. Both models contain a number of judgements around the structure of the economy, the key shocks that impact on the economy, and how the economy evolves in response to these shocks.

The paper concludes that one of the main differences between the two models occurs in the impact of a world price shock on the real exchange rate and subsequently on exports and imports. Another key difference is the mechanism through which the net foreign asset position returns towards equilibrium. In FPS, the external balance is partly attained by forward-looking consumers who adjust spending to reach desired wealth positions. In contrast, the real exchange rate is the key mechanism in NZTM for re-establishing equilibrium.

Table of Contents

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Table of Contents

List of Figures

1 Introduction

2 Overview of the NZTM and FPS models

3 Simulation properties

4 Summary

5 Future work



twp03-25.pdf (516 KB) pp. 31

List of Figures


We thank Bob Buckle, Nathan McLellan, Peter Mawson, Grant Scobie and Christopher Plantier for detailed comments for the early version of the paper.


The views expressed in this Working Paper are those of the author(s) and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate.


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