, lewis, and norman ( 2006 ) ; smith 22 we follow the methodology in smith ( 2006 ) where housing equity withdrawal is defined as the change in mortgage lending plus capital grants minus housing investment. housing investment includes residential investment in dwellings, household transfer costs, transfers of dwellings to the household sector, and net transfers of land to the household sector. capital grants include kiwisaver first home withdrawals and home start grants since their introduction in 2011. estimated residential investment and residential insurance pay - outs relating to the canterbury rebuild have been excluded, as the related fluctuations in equity may not represent changes in household behaviour. 23 wong ( forthcoming ) 24 for details of the cointegration estimation framework, see de veirman & dunstan ( 2008 ). the full - period analysis suggests that a 1 percent increase in real per - capita housing wealth is associated with a 0. 20 percent increase in real per - capita consumption on average, while the long - run income elasticity is 0. 47 percent. the marginal propensity to consume out of housing wealth is almost twice that of financial wealth ( 0. 12 percent ), although this difference in magnitude was much lower than that found in de veirman & dunstan ( 2008 ). 25 the increase in the coefficient on financial wealth is difficult to interpret as it was not well defined ( statistically significant ) in the pre - 2005 sample. in other results, excluding farm income that is highly variable, the parameter on financial wealth is more stable and statistically significant across the split samples. 26 given potential instability in the long - run relationship, which may undermine the cointegration approach, the wealth effects are also estimated using an alternative approach developed by carroll, otsuka, and slacalek ( 2011 ). the result is similar to the baseline in that the marginal propensity to consume out of housing wealth has fallen in the split sample post - 2005, while it increased for financial wealth. 27 the imf ( 2016 ) estimated an output gap of - 0. 8 percent ( as a percentage of potential gdp ) for advanced economies in 2016, improving from a trough of - 3. 8 percent in 2009. 28 modelling work in the rbnz has found the response of the output gap to an interest rate shock since the gfc is not statistically different from the pre - gfc period. 29 similar results for australia were reported by kent ( 2015 ). references buttiglione, l., lane, p., reich

- 3. 0 - 3. 5 australia new zealand other advanced economies euro area g7 source : imf. in australia and new zealand, weaker - than - expected demand has come via lower - thanexpected consumption growth relative to income and, in particular, relative to wealth. notwithstanding a smaller financial crisis than experienced in many advanced economies, australasian households appear to have adopted a new - found prudence. one indicator of this is the net foreign liability position, which for new zealand has fallen from a peak of 84 percent of gdp in march 2009 to around 65 percent of gdp in the 2016 june quarter. this reflects a narrowing current account deficit over the period resulting from higher national saving. in addition, there was a sharp narrowing in the investment income deficit ( from 6. 3 percent to 3. 7 percent of gdp ) as interest on foreign debt declined. in australia, national saving began rising in 2004 and eventually peaked at 24. 8 percent of gdp in 2011, contributing to a narrowing in the current account deficit since the mid - 2000s. national saving has eased slightly in recent years, but the current account deficit and net foreign liability position have remained broadly stable. turning more directly to the household sector, australia ’ s household saving rate increased from around zero in 2003 to an average of about 7 percent of disposable income thereafter ( figure 6 ). new zealand also saw a recovery in the household saving rate from a trough of - 6. 8 percent in 2003 to 2. 4 percent in 2012. over a longer - term context it is striking that the 1990s and early 2000s were an exceptional period of low or negative saving. for example, in australia, the personal saving rate has averaged about 10 percent since 1960 and was as high as 19 percent in 1973. in new zealand, household saving averaged 4 percent of household disposable income from 1987 to 1994, and was then negative for most years until 2010. figure 6 : household net saving rate ( percent of disposable income ) % % new zealand australia - 5 - 5 - 10 - 10 source : statistics new zealand, australian bureau of statistics. decomposing changes in household saving why has household saving increased? a number of explanations are plausible as i highlighted earlier. it is not my intention to examine these hypotheses comprehensively today. but i will point to some promising lines of inquiry by reviewing how different household groups have behaved before and after the gfc. the rba recently examined the rise