Michael Cullen should learn when to stop talking

Again Mr Cullen decided to tell us what he thinks about monetary policy. To tell you the truth, I wouldn’t care what he says (even with his Phd in Social and Economic history) if it wasn’t for the fact that he could force a change in monetary policy. He is the finance minister, in public he is supposed to keep out of monetary policy and stick to only fiscal policy. The more he threatens to intervene, the more uncertainty it creates, which in turn leads to a volatile exchange rate.

The institutions he should be looking to improve are the core government departments. If the productivity of government spending was higher, we would not be facing this inflation problem.

Don’t forget the sort of inflationary pressures that will come out of the Labour governments traditional lolly-scramble. He’ll blame anyone except the government for his poor management of the economy.

  • Steve D

    Odd, I had expected that once the dollar started to fall monetary policy would drop off the political radar… oh well not the first time I’ve been wrong

    The interesting question is what Cullen is suggesting as an alternative. Matt you made a good point over at KiwiBlog that using monetary policy to smooth the exchange rate would simply substitute one form of volatility for another – and at least you can hedge against the dollar.

    The decision to adopt the price stability objective was based on empirical evidence that this results in stronger growth over the long term. So I would be happy for a similar inquiry into the merits of exchange rate stability , provided that it was methodologically rigorous. Probably wounldn’t turn out to be feasible, given the resulting volatility in price and output. But no point in being too dogmatic with regards to price stability.

  • Matt Nolan

    I agree, if I thought that another method was more efficient and equitable I would be all for it. If I had the empirical skills I would like to do a study like that. Sadly, as I have no skills I have to rely on what I’ve been taught.

    What can I say, I’m bounded rational.

  • Steve D

    OK so we agree. If another method is better, we should do that.

    We should set up as consultants!

  • Matt Nolan

    If only we had some way of objectively comparing methods. It sounds like this weeks readings will come in useful 😉

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