New Zealand Institute of Economic Research (Inc)
Embargoed until 10am Wednesday 1 November 2017
With the new Government indicating the Reserve Bank Act would be reviewed, NZIER has published an Insight discussing the alternatives to inflation-targeting in the post-GFC environment.
“Inflation targeting worked well when monetary policy was used to bring inflation down” Christina Leung, a Principal Economist at NZIER said.
“But since the Global Financial Crisis there have been positive supply shocks which have pushed up growth but pushed down inflation, both here in New Zealand and globally. For the Reserve Bank of New Zealand, inflation targeting has meant extraordinarily low interest rates even when growth has been solid. This has led to negative side-effects to the economy, including a surge in asset prices.”
“The review of the Reserve Bank Act provides a welcome opportunity to make sure New Zealand’s monetary policy framework is fit for purpose. The Government has indicated it would like the review to consider the addition of an employment target to the inflation target. While the review is welcome, it needs to consider alternative targets such as nominal income growth. Undertaking a comprehensive review of alternative targets would ensure monetary policy is appropriate for the post-GFC environment.”
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