Have the effects of monetary policy on inflation and economic activity in New Zealand changed over time?

Aim: To consider the potential effectiveness of further OCR movements in managing inflation, GDP growth and supporting maximum sustainable employment.

Outcome: At the end of this module advisers will better understand the effect of an OCR decrease on inflation and GDP growth, post the GFC era.

Abstract: This RBNZ paper considers the effectiveness of monetary policy in the aftermath of the GFC. The current interest rate climate in NZ is such that most commentators expect interest rates to fall even further. Potentially interest rates could even become negative as has been seen in some other countries, e.g. Greece and Switzerland. Using three different models to evaluate monetary policy transmission, this paper considers whether, with so little room left to move, the movements in the OCR can still be effective in raising inflation and GDP growth, and supporting maximum sustainable employment.