Financial University

Under the Government of the Russian Federation

Chair of Macroeconomics

Laboratory work on Macroeconomics

Monetary Policy of Reserve Bank of New Zealand

Prepared by:

Stopnikov Nikita the student of

Finance University under the government of the Russian Federation

IFF the 2nd course student group 2-1

Tutor:

Vladimir Skalkin

Finance University under the government of the RF

Chair of Macroeconomics

Candidate of Economics

Plan:

1. Introduction…………………………………………………………...3

2. Literature review………………...……………………………………6

3. New Zealand. Economic and political structure in brief………….…..9

4. The Reserve Bank of New Zealand………………………………….11

5. Analysis and interpretation of data……………………….………….16

6. Conclusion and a look forward…….………………………………...45

7. List of References……………………………………………………48

8. Anti-plagiarism………………………………………………………49

1. Introduction

In today’s world, the Governments, the business and investment community, and the general public have no doubts about the importance of the role of policy makers in shaping the financial and economic events. If successful, the policies can make a significant contribution to the nation’s prosperity. If not, the effect of the wrong policies can be to ruin the economy, even with a lot of potential. The effect of the wrong policies can sometimes be compared to the effects of a destructive war. Monetary policy is the set of tools that are used mainly by the Governments or central banks if these are independent of Governments.

What is noticeable, each country has quite distinctive features of monetary policy compared with other countries. For instance, in Russia, monetary policy has been for a long time aimed at managing the Ruble exchange rate. In the United States of America, monetary policy tools are frequently used when GDP growth or unemployment is a matter of concern for the US administration. In Europe, Australia and New Zealand the central banks’ primary concern is the level of inflation¹. However, in almost all counties (Russia being perhaps the only exception among the G8 nations), monetary policy was also aimed at controlling the economic cycle. In Russia the monetary policy until recently had little reference to what was happening in real economic life. The refinancing rate of the Central Bank of Russia was set and changed more or less regularly². However, the effect of these changes on the economic events (which is the reason monetary policy steps are taken in the first place – to change the course of events) had been minimal. It is encouraging that recently the Central Bank of Russia has been taking a firm position on its role as the principal regulator of the economic environment. It is also encouraging that the Central Bank is moving towards realization of the fact that it should have the primary responsibility in maintaining the overall level of prices with the help of monetary policy instruments.

In my opinion, it would do much good for the Russian economy if the Russian Central Bank kept an open mind and was willing to use the policy instruments, which have proved to work well in other countries with open economies. In addition, it would also be beneficial if the administrative environment of such open economies was examined and some elements perhaps even copied directly into the Russian banking and financial system, and the economy in general.

New Zealand, despite being a very small country, serves as an excellent example in many areas, for other countries to follow:

• It is an economy open to the world, i.e. the country is not an autarky, it actively engages in foreign trade;

• The institutions and laws in New Zealand are among the best in the world, where businesses and households have confidence in the system’s ability to self-correct and self-regulate;

• Government intervention in the economy is minimal, but when it is required, the Government and the Reserve Bank of New Zealand are ready to step in with policy initiatives, which could help the markets;

• The country is so respected in the international community that it regularly shows in the Top 10 of the Doing Business ranking. In 2011 New Zealand was awarded the Most Peaceful Nation title, and the World Bank placed New Zealand at overall No 3 position in its 2014 assessment for the second consecutive year³.

• The Reserve Bank of New Zealand is openly accountable for its policy decisions⁴. On the other hand, the Bank never engages in anything, which would take its attention and effort away from the main policy goal – overall price stability as measured by the rate of inflation. The Bank of course keeps track of all the major economic indicators, including GDP growth and unemployment levels, but it openly states that it is outside the Bank’s competence to influence the unemployment levels, for example, or the long-term GDP growth⁵, because these indicators depend on factors largely outside its control.

Overall, the country’s position in the world is determined, among other things, by how truthful the actual policies were, compared to the declarations, and how successful the declared policies have been, when time comes to consider the actual policy results. Here, again, New Zealand offers an example to follow.

In this paper, I will begin with a brief review of the literature, which has been covered during preparation of this paper. I will continue with a brief outline of New Zealand economic and political structure. The next section will deal with some analysis and interpretation of data for different periods of time, and explain what the monetary policy decisions were, and why they were taken. The analysis will be supported by official statistics modified where appropriate and presented in graphical form so that it is easy for the reader to visualize. I will conclude with an opinion as to the success of the policies, and with some projections which have been developed in respect of New Zealand for the future.