John McDermott: Inflation targeting in New Zealand - an experience in evolution

Speech by Dr John McDermott, Assistant Governor and Head of Economics of the Reserve Bank of New Zealand, at the Reserve Bank of Australia conference on central bank frameworks, Sydney, 12 April 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

It is a pleasure to discuss an issue that is especially pertinent for the Reserve Bank of New Zealand at present - the evolution of central bank frameworks. As many of you will be aware, the New Zealand Government is in the process of changing our monetary policy framework, to add employment to our existing mandate of price stability and formalise a decision-making structure based on a committee. This would bring us closer to a framework like the one here in Australia, and in the United States of America.

This paper is in a section titled Twenty Years of Inflation Targeting, but in New Zealand it has actually been much closer to thirty. The RBNZ Act came into effect February 1990, making New Zealand the first country to formally adopt inflation targeting as we now know it.

New Zealand's experience has been one of evolution. As the Bank established its credibility - by which I mean it became clear that we could and would meet our price stability objective - we were able to develop a more flexible approach to inflation targeting, consistent with the literature and with developments in other inflation-targeting countries.