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The long-run effects of monetary policy on output growth

  • Christie Smith

    (Reserve Bank of New Zealand)

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/-/media/ReserveBank/Files/Publications/Bulletins/2004/2004sept67-3smith.pdf
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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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  17. 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.
  18. 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.
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