An Introduction to the New Zealand Treasury Model (WP 09/02)

Abstract

The Treasury is the New Zealand government’s lead advisor on economic and financial issues.  Part of this advice consists of providing the government with forecasts of economic and fiscal variables.  Economic forecasts are important, not only as a basis for forecasts of tax revenue, but also in informing the government of the macroeconomic environment in which proposed fiscal policy settings will operate.  The New Zealand Treasury Model (NZTM) is an important part of the economic forecasting process at the Treasury.  This paper has three purposes.  The first is to give readers an idea of the key features of NZTM.  The second is to detail major changes to the model since the last published documentation of the model (Szeto, 2002).  These model developments have enhanced NZTM to provide more detailed forecasts.  Key changes include the disaggregation of deflators into the various expenditure GDP components, the introduction of consumption and capital goods imports into the model (rather than just treating them as intermediate imports) and the disaggregation of the inflation equation into tradable and non-tradable components.  The final purpose of this paper is to outline briefly NZTM’s role in the Treasury’s forecasting process.

Acknowledgements

Thanks to David Galt, Samuel Direen, Paul Rodway, Tim Hampton Simon McLoughlin and Patrick Conway for helpful editorial comments.

Disclaimer

This document was commissioned by the New Zealand Treasury.  However, the views, opinions, findings and conclusions or recommendations expressed in it are strictly those of the author(s), do not necessarily represent and should not be reported as those of the New Zealand Treasury.  The New Zealand Treasury takes no responsibility for any errors, omissions in, or for the correctness of, the information contained in this Paper.