125220_16(T10): Monetary Policy in New Zealand

• Avoid excessive inflation
• Maintain full employment
• Achieve sustainable economic growth-economic prosperity
• Achieve a stable currency & strong international payments position

• Concerned with control of amount of money in circulation i.e. money supply & its growth
• Used (along with fiscal policy) to prevent wide swings from high peaks to low troughs in business cycles

Govt sets monetary policy & central bank implements it. Case in NZ up to 1986.

Govt sets monetary objectives within certain constraints - central bank free to achieve objectives. Case in NZ now.

Monetary policy objective set in legislation - central bank free to follow whatever course of action it sees fit to achieve objective