New Zealand’s monetary policy framework has been back in the spotlight recently – though you could say it’s never been out of it for very long.
Concerns about monetary policy have generally revolved around two issues: the effectiveness of using short-term interest rates to manage inflation, and the impact on the volatility of the exchange rate. The first of these has attracted less attention recently, with annual inflation comfortably back within the target band. It’s the latter that has been causing angst, as the NZ dollar has surged higher even though the economy is just barely emerging from recession.
We’ve written on these issues many times in the last few years, including in our submission to the Inquiry into the Future Monetary Policy Framework in 2007, which we’ll quote from liberally here:
“The OCR has proven an extremely effective tool for implementing inflation targeting. Indeed, New Zealand’s monetary policy arrangements are considered international best practice for monetary policy and have subsequently been adopted by over 30 countries worldwide.
We feel that any deviation from this internationally accepted norm should be backed by solid research and evidence.
We note that no rigorous evidence to substantiate some popular notions about monetary policy has been forthcoming.”
