Regime shift and fast recovery on the periphery: New Zealand in the 1930s

New Zealand’s recovery from the Great Depression was unusually fast and promoted by a new monetary regime that disassociated the Dominion’s banking system from that of Australia, and broke the conventional parity between the New Zealand pound and sterling. The new regime destroyed deflationary sentiments, redistributed income to farmers, and sharply reduced real interest rates. Collectively, these forces promoted recovery. The consequences for New Zealand’s real GDP are gauged by assessing how money, velocity, and prices would have behaved without a regime change. The new monetary regime raised real GDP per caput by one-third by 1938.