3 The premium on New Zealand’s real rates of interest
As stated above, the NRR is a theoretical concept that is not observable in practice. There have been several attempts to estimate a point (Archibald and Hunter, 2001) or time-varying NRR for New Zealand (Basdevant, Björksten and Karagedikli, 2004; Plantier, 2003). In Figure 1, estimates of New Zealand's (90 day) NRR and that of other countries is shown (refer to Appendix A for the methodology of the estimation).
- Figure 1 - Estimates of NRRs in comparator countries[4]
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- Source: Björksten and Karagedikli, 2003 (updated by the authors)
Between 1997 and 2006 New Zealand's NRR declined by around 200 basis points (bps), but along with similar declines in the NRR of the United States, the United Kingdom and Australia.[5] Since around 2005, the premium on the New Zealand NRR increased relative to that of all three comparator countries.
Over the past two decades, New Zealand has on average had higher long-term real interest rates compared with most other OECD countries (except for Iceland, Poland and Mexico) (Figure 2).
- Figure 2 - Average long-term real rates for selected OECD countries
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- Source: OECD
Notes
- [4]Figure 1 is an updated version of Figure 9 in Reserve Bank of New Zealand (2003)using the same methodology.
- [5]The general downward trend in estimated NRRs has been empirically linked to falling inflation volatility and the stabilisation of inflation expectations, a fall in public debt ratios in many countries and, in Europe, it is also thought that lower productivity and population growth over this period may have been a factor.
