= Changing rhetoric to win votes. I don’t know whether it makes me laugh or hit my desk angrily – I guess I’ll do both.
Listen to this:
Labour would broaden the Reserve Bank’s monetary policy targets, adding a requirement to aim for a stable currency, full employment, and the economic prosperity and welfare of the people to its existing inflation target
Yes, because determining how quickly to run printing presses can do all these things.
And has Labour figured out how to measure welfare in society? If so I would like to meet them and congratulate them – that has been a vexing issue for economists AND psychologists for centuries.
“The Reserve Bank Act needs to be clarified to ensure the bank can use such tools primarily for the purpose of supporting Monetary Policy,” Labour’s associate finance spokesman David Parker said.
“Labour will make that change. Faced with rapid credit expansion, such as that in recent years, the change would cause the Reserve Bank to use prudential ratios, rather than rely solely on interest rates.”
Yes because, ex ante, when we have little information on the nature of the economy relative to its potential the Reserve Bank is incredibly well placed to determine the level of risk banks should take on.
Also, prudential regulation will change interest rates – acting like this is a “cost free” way to change monetary conditions is weird.
I realise the Bank is introducing prudential regulations, and I can see some potential for it theoretically. However, I’m still not convinced at this level – and as a result definitely don’t think it should be made a central part of their mandate yet. As I’ve said before, I think the organisations that determine monetary policy and prudential policy should be kept separate on transparency grounds.
You want more discussion on these issues – search the blog, we’ve written about these things repeatedly. One day soon I may come back to it. And if you think this “change” in policy make sense, feel free to email me/comment etc, but there is only the slimmest of chances I’ll ever agree with you – so keep that in mind.