Keeping track of the business cycle

Business cycles, the phases of expansion and recession in an economy, are a durable feature of macroeconomic data. Typically, quarterly real GDP data is used to determine the phase of the business cycle we are in.

Unfortunately, official New Zealand data on quarterly GDP does not go back very far in time, limiting our ability to understand recessions and expansions. Here I want to share some work I’ve done trying to build a consistent GDP series for New Zealand that goes back until 1947.

To extend New Zealand GDP figures beyond the time horizon given by official estimates Hall and McDermott (2011) used a range of econometric methods to estimate a quarterly GDP series using annual GDP data and quarterly indicators of the economy. The quarterly estimates developed by Hall and McDermott (2011) go all the way back to 1947 providing many more episodes of recession to study than would have been the case had we used only official data.

The data can be found at the following link.

Figure 1 plots the natural logarithm of real GDP since 1947 for New Zealand with key New Zealand recessions shaded in grey. Over these 70 plus years the size of the economy has increased more than seven-fold. However, this growth has not followed a steady path. There have been periods of significant increases and declines in output and these variations makeup the New Zealand business cycle. 

New Zealand’s Classical Real GDP Business Cycles: 1947 – 2019

There are a myriad of stories which come out of this data, such as:

1. Why are there periods with much stronger trend growth (1950-1976) and much weaker trend growth (1976-1991)?
2. What were the reasons for each of the recessions (contractionary phases) listed above?
3. At 42 quarters, the current expansionary phase is the second longest on record – although with lower average growth than many other phases.  What does this mean?

If there are any particular items you’d like discussed in the future, I’d be keen to hear your thoughts.

References

Hall, Viv B and C John McDermott, “A Quarterly post-Second World War Real GDP Series for New Zealand,” New Zealand Economic Papers, 45(3), December 2011, 273-298, Table A4.

Hall, Viv B and C John McDermott, “Recessions and Recoveries in New Zealand’s post-Second World War business cycles,” New Zealand Economic Papers, 50(3), December 2016, 261-280.