As far as I can tell (tell me if I’m wrong), the content of the post boils down to this paragraph:
More importantly, acting alone it has not achieved inflation control alongside reasonable stability of exchange rates and money supply. Combined with an imbalanced tax structure, high real interest rates helped suck in hot money that drove the housing bubble.
Now, I don’t know why he’s mentioning the money supply unless he’s going back to inflation – so lets ignore that. Exchange rate stability is not important – if the dollar is moving because commodity prices are moving (which they have been) then it helps to stabilise movements in the value of export prices. This is a good thing.
So we are left with the housing bubble. I commented on the post with this:
Imbalanced tax structure – yes.
High interest rates – no.
An imbalanced tax structure with a lower OCR would have lead to a larger housing bubble. We are a small open economy, the supply of credit is infinite – the housing bubble stems from credit demand, which is declining in the OCR.
This is something people forget. We are a small open economy. The supply of credit at the world interest rate is infinite, no matter what our OCR is. As a result, everything falls back to our “demand curve”. Demand for housing credit is falling in the domestic interest rate – therefore, if our RBNZ increased the opportunity cost of bank lending by lowering the OCR it would lead to less borrowing to fund housing relative to otherwise.
We cannot blame monetary policy for the housing bubble (unless we feel they should have increased interest rate more). I remember BERL making the same claim a while back, I was a bit unhappy with it then and I still am now.