Developing an Indicator of Fiscal Stance for New Zealand

Philip and Janssen present a synthetic indicator of the fiscal stance for New Zealand, which attempts to gauge the impact on aggregate demand of discretionary fiscal policies. The indicator corresponds to the change of the cyclically adjusted primary balance, as a ratio to GDP, adjusted for various factors. The paper discusses systematically the problems that arise in calculating such an indicator and is transparent on the decisions taken concerning each of them. Accounting and data issues are extensively examined and the way the authors treat capital transactions is definitely more accurate than in most analogous studies. The authors note that, at least in the period considered, the indicator is not very sensitive to the key decisions taken in its construction but still advocate a very cautious use of the tool, as a synthetic indicator cannot, by definition, capture all important factors relevant for the assessment of the impact of fiscal policy on the economy