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The long-run effects of monetary policy on output growth

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Author Info
Christie Smith (Reserve Bank of New Zealand)

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Abstract

This article looks at how interest rates and inflation affect growth in the capital stock, labour supply, and technology, the main determinants of long-run economic growth. Many additional factors affect long-run economic growth, but most of these factors lie outside the sphere of monetary policy. Monetary policy therefore has only a limited capacity to contribute to economic growth over the longer term. However, the evidence does indicate that keeping inflation low and stable makes a positive contribution to long-run economic growth, and that this is the most effective contribution that monetary policy can make to the economy's performance over time. This finding supports the monetary policy framework operational in New Zealand, which is focused on keeping inflation between 1 and 3 per cent on average over the medium term.

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File URL: http://www.rbnz.govt.nz/research/bulletin/2002_2006/2004sept67_3smith.pdf
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Publisher Info
Article provided by Reserve Bank of New Zealand in its journal Reserve Bank of New Zealand Bulletin.

Volume (Year): 67 (2004)
Issue (Month): (September)
Pages:
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Handle: RePEc:nzb:nzbbul:september2004:1

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Leo Bonato, 1998. "The benefits of price stability: some estimates for New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, September. [Downloadable!]
  2. Bruce White, 2001. "Central Banking: back to the future," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, september. [Downloadable!]
  3. Rapach, David E, 2003. " International Evidence on the Long-Run Impact of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 23-48, February.
  4. Iris Claus & Christie Smith, 1999. "Financial intermediation and the monetary transmission mechanism," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, December. [Downloadable!]
  5. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September. [Downloadable!]
  7. Philippe BACCHETTA & Eric VAN WINCOOP, 1999. "Does Exchange Rate Stability Increase Trade and Welfare ?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9917, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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  8. Ho, Wai-Ming, 1996. "Imperfect Information, Money, and Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 578-603, November. [Downloadable!] (restricted)
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  9. Eduardo Ley & Mark F. J. Steel, 1999. "We Just Averaged over Two Trillion Cross-Country Growth Regressions," IMF Working Papers 99/101, International Monetary Fund.
  10. repec:fth:simfra:93-03 is not listed on IDEAS
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  12. Kevin D. Hoover & Stephen J. Perez, 2004. "Truth and Robustness in Cross-country Growth Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 765-798, December. [Downloadable!] (restricted)
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  13. Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 123-166 National Bureau of Economic Research, Inc. [Downloadable!]
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  14. Orphanides, Athanasios & Solow, Robert M., 1990. "Money, inflation and growth," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 6, pages 223-261 Elsevier. [Downloadable!] (restricted)
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  17. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September. [Downloadable!] (restricted)
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  18. Thanasis Stengos & Theofanis P. Mamuneas & Pantelis Kalaitzidakis, 2002. "Specification and sensitivity analysis of cross-country growth regressions," Empirical Economics, Springer, vol. 27(4), pages 645-656. [Downloadable!] (restricted)
  19. Paul Conway & Adrian Orr, 2000. "The process of economic growth in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 63, March. [Downloadable!]
  20. Bruce White, 2001. "Central banking: back to the future," Reserve Bank of New Zealand Discussion Paper Series DP2001/05, Reserve Bank of New Zealand. [Downloadable!]
  21. Chris Hunt, 2004. "Interpreting clause 4(b) of the Policy Targets Agreement: avoiding unnecessary instability in output, interest rates and the exchange rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, june. [Downloadable!]
  22. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," Harvard Institute of Economic Research Working Papers 1941, Harvard - Institute of Economic Research. [Downloadable!]
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  23. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alan Bollard, 2005. "New Zealand's potential growth rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, March. [Downloadable!]
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