Long Run Concepts in New Zealand Macroeconomic and CGE Models

This paper evaluates how published economy-wide New Zealand models have treated concepts relevant to the long run. These concepts, a number of which have only indirect linkages to the long run, include steady-state growth, rational expectations, unit roots and cointegration, domestic and external debt sustainability (including intertemporal fiscal and foreign sector constraints), explicit supply (including physical capital accumulation), the interfacing of macroeconomic and computable general equilibrium (CGE) models, and the interfacing of New Zealand and Australia CGE models. Of particular relevance to this paper are the properties requiring long-run equilibrium paths to exhibit balanced growth and financial neutrality, and long run equilibrium to embody producer and household optimizing behaviour wherever empirically justifiable. The degree of conformity of New Zealand models to the properties of dynamic stability under tenable policy regimes, and of incorporating rational expectations where plausible, are also considered