Interpreting clause 4(b) of the Policy Targets Agreement: avoiding unnecessary instability in output, interest rates and the exchange rate
AbstractIn clause 2(b) of the Policy Targets Agreement (PTA) between the Minister of Finance and Governor of the Reserve Bank, the target used to direct the Reserve Bank's pursuit of price stability is expressed as "future CPI inflation outcomes between 1 per cent and 3 per cent on average over the medium term." While the Reserve Bank has the independence to choose when and how to adjust policy settings so as to achieve the target, another clause of the PTA provides guidelines as to how this freedom should be used. In clause 4(b) of the PTA, the Minister of Finance and the Governor agree that, in using monetary policy to pursue price stability, the Bank shall take account of the implications of its actions for instability in economic output, interest rates, and the exchange rate. This article describes how clause 4(b) affects monetary policy decision-making, and reviews the role of clause 4(b) in the current operation of monetary policy.
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Bibliographic InfoArticle provided by Reserve Bank of New Zealand in its journal Reserve Bank of New Zealand Bulletin.
Volume (Year): 67 (2004)
Issue (Month): (june)
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- Ross Kendall & Tim Ng, 2013. "The 2012 Policy Targets Agreement: an evolution in flexible inflation targeting in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 76, pages 3-12, December.
- Christie Smith, 2004. "The long-run effects of monetary policy on output growth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, September.
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