4.3 Historical decomposition
Historical decompositions measure the contributions of different structural shocks to realisations of endogenous variables. In order to shed further light on the importance of the different shocks, Figures 9 and 10 show the estimated historical decompositions of New Zealand's GDP and real exchange rate growth in terms of the contributions of each foreign shock, as identified using the extended SVAR model of the preceding subsection. In each case, growth rates of quarterly actual GDP and the real exchange rate from 1986 to 2011 are shown as the first panels of the figures, with these growth rates then decomposed into the effects as sourced by the three of the eight separate shocks of the model.
- Figure 9: Contributions of foreign shocks to New Zealand's economic growth
In line with the impulse responses seen in Figure 7 and Figure 8, shocks originating in US have been relatively more important overall for New Zealand GDP than those from the China. The positive contribution of shocks from China’s growth after 2005 and the negative impact of US growth shocks during the global financial crisis are evident. Shocks to Australia’s GDP have had a sizeable contribution throughout the sample period.
Turning now to the real exchange rate, Figure 10 shows that foreign shocks play a major role in the dynamics of New Zealand’s real exchange rate while domestic shocks are relatively less important (not shown but are available upon request).
- Figure 10: Contributions of foreign shocks to New Zealand's real exchange rate
Notes: See Figure 9. Source: Authors' calculations.
