IDEAS home Printed from
   My bibliography  Save this paper

Central Bank Independence, Fiscal Responsibility, and the Goals of Macroeconomic


  • Ralph C. Bryant


In contemporary New Zealand, microeconomics is in the ascendant over macroeconomics, to such an extent that neither the Reserve Bank nor the Cabinet and Treasury appear to give much attention to shorter-run macroeconomic stabilization as a policy goal. This lecture examines why thoughtful New Zealanders are attracted to this atypical aversion, and asks whether that aversion is in New Zealand's best interests. The lecture concludes that New Zealand's Reserve Bank Act provides admirable institutional arrangements for the political independence of the central bank in New Zealand. Insulation from the political process protects against excessively short-sighted pressures on monetary-policy decisions. Because the Reserve Bank has instrument independence, but not goal independence, monetary policy is appropriately subject to democratic accountability. In principle, the credibility and time consistency of policies can be enhanced by mandating that neither the Reserve Bank nor the Government should engage in macroeconomic stabilization. Yet the economy might incur avoidable costs if policymakers stay completely out of that business. Accordingly, the tradeoff between credibility and time-consistency advantages on the one hand and potential gains from stabilization flexibility on the other deserves more careful attention than it typically receives in New Zealand. The emphasis in New Zealand on getting the long- run aspects of economic policies right is easily explained by recent history. Furthermore, the long-run aspects should continue to have priority. But putting primacy on the long run need not preclude some complementary role for shorter-run macroeconomic stabilization. The credibility advantages of complete abstinence are probably not so overwhelming as to justify keeping macroeconomic stabilization locked up in the closet.

Suggested Citation

  • Ralph C. Bryant, 1996. "Central Bank Independence, Fiscal Responsibility, and the Goals of Macroeconomic," Discussion Papers 126, Brookings Institution International Economics.
  • Handle: RePEc:wop:briedp:126

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Adam S. Posen & Frederic S. Mishkin, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, issue aug, pages 9-110.
    2. Economics Department, 1996. "Economics Department research over the past year: a review," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 59, September.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:briedp:126. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.