How many times do we have to re-learn what monetary policy can and can't do?

31 Oct 2012

Don Brash from the New Zealand Centre for Political Research discusses the recent changes to the Reserve Bank Act.



One of the most depressing things that has happened in New Zealand in recent times was the narrowness with which Winston Peters’ bill to amend the Reserve Bank Act was defeated a few days ago – 61 votes to 60.

Mr Peters’ bill was supported not only by New Zealand First, but also by Labour, the Greens and the Maori and Mana parties. It was depressing because, after more than two decades of low inflation in New Zealand, with the New Zealand approach to inflation targeting being copied by almost all developed country central banks, virtually half the New Zealand Parliament suffers from the illusion that monetary policy can increase real economic growth and improve the competitiveness of the export sector.

I find it particularly sad that the Labour Party supports this illusion. The Reserve Bank of New Zealand Act 1989 was, of course, the product of the reforming Labour Government of 1984 to 1990 – and it was passed without a single dissenting vote in Parliament (to be fair, Rob Muldoon was in hospital at the time it was passed).

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Image: Flickr / congvo

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