RBNZ Assistant Governor and Head of Economics John McDermott discussed “evolution in inflation targeting” in a speech delivered to the RBA conference on central bank frameworks in Sydney today. He noted that the New Zealand “framework has changed significantly over thirty years, reflecting lessons learned and the changing economic and political environment” And, the central bank is ” about to enter the next stage of that evolution.”
A key recent change to RBNZ’s framework is duel mandates of inflation and employment. The exact wordings to be put on the Reserve Bank Act are not finalized yet. But putting a qualitative target like “maximum sustainable employment” would be a better choice rather than a numerical target. He pointed out that “focusing too narrowly on one indicator, such as the unemployment rate, can be misleading. For example, a fall in the unemployment rate could be the result of an increased demand for labour – typically reflecting a strong economy – or the result of people dropping out of the labour force altogether because they are unable to find a job and have become discouraged.”
Full speech here. An interesting read for understanding how the RBNZ framework evolved in the past decades.
