The macroeconomic determinants of the business failure rate in New Zealand : report of a preliminary investigation

Abstract

This paper examines the business failure rate [BFR] in New Zealand over the period 1951 - 1991. It is an empirical OLS regression study that examines the extent to which the BFR can be attributed to monetary instability, because it is argued, that although inflationary pressures may appear to assist business cash flows initially it creates problems in subsequent periods. It also examines the extent to which the BFR can also be attributed to changes in central government current consumption and investment spending which result in a multiplier effect on aggregate demand. It examines the extent to which there is any empirical support for a political business cycle impact on the BFR and finally, it examines the extent to which the BFR can be attributed to a spill over - · effect of business failure impacting unfavourably on other firms. A three variable regression model which forecasts only a very slow recovery of the BFR in New Zealand is developed