Independent Review of the Operation of Monetary Policy in New Zealand

In May 2000, the Government announced that the New Zealand monetary policy framework would be reviewed. Professor Lars Svensson of Stockholm University was appointed to undertake the review and to report by the end of February 2001. Professor Svensson’s report was released by the Treasurer/Minister of Finance on 28 February.

In this issue of the Bulletin, we have published the Executive Summary and recommendations of the Svensson Report, together with the terms of reference of the review. The complete report by Professor Svensson can be obtained from the New Zealand Treasury and can be accessed on www.monpolreview.govt.nz – the monetary policy review website, and on www.rbnz.govt.nz – the Reserve Bank of New Zealand’s website.

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Monetary Aggregates Play Little Role In The Conduct Of Monetary Policy

In conventional macroeconomic thinking, the money supply is considered the main determinant of long-run inflation. A variety of monetary aggregates have been proposed to measure the money supply. Yet, nowadays, monetary aggregates play little role in monetary policy deliberations at most central banks.

A new study in the Journal of Money, Credit and Banking examines the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. The analysis finds that none of the arguments provides a compelling reason to assign a prominent role to monetary aggregates.

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Monetary policy and long-term interest rates: a survey of empirical literature.

This paper surveys recent empirical literature on effects of monetary policy on long-term interest rates. Most studies reviewed here suggest that tightening monetary policy results in higher long-term interest rates. But available evidence suffers from conceptual and empirical problems and fails to indicate the magnitude of short-run and long-run policy effects on long rates. Also, recent studies have not investigated the possibility of shifts in recent-year effects of monetary policy on long rates. Finally, the paper offers a policy perspective on limitations of existing evidence and suggests future research on monetary policy effects on long rates.

I. INTRODUCTION

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