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Macro-economic thinking

Why have the do-nothing policies of the 1980s gone out of fashion?

By Brian Easton In Economy

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11th March, 2006
Just under 20 years ago, the Kiwi dollar was overvalued. A spendthrift government was running a large internal deficit that had to be financed by borrowing. As the offshore loans flooded in, attracted by high interest rates, the exchange rate (the Kiwi dollar relative to overseas currencies) was pushed up. Exporting became less profitable and importing more profitable. Export firms stagnated, those that competed against imports closed down, there was widespread unemployment, and the economy stagnated, with six years of falling per capita output. In 1985 we were in the top half of the ...

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