Interview with Donald Brash - The Region - Publications & Papers _ The Federal Reserve Bank of Minne

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RSS An interview with the head of New Zealand's central bank. David Levy - Vice President Published June 1, 1999 | June 1999 issue Donald Brash has a steady stream of visitors to his Wellington office. As Governor of the Reserve Bank of New Zealand, he often is called upon to explain his country's approach to central banking and to discuss the market-oriented structural reforms of the economy that have occurred in the last few decades. Early one morning, Brash spoke with The Region magazine about these topics and fielded questions ranging from the extent of his "personal" responsibility to fight inflation, to his involvement with the kiwifruit business. The interview concluded with only minutes to spare as central banker Brash swapped to his "dad" hat and raced off to his son's school Easter program. REGION: New Zealand's central banking legislation, or the Reserve Bank of New Zealand Act of 1989, attracted worldwide interest. Why is that? BRASH: I think it's because when it was put into place it embodied two things. One, the latest thinking about what monetary policy could do, namely influence inflation. Most central banks, including our own, including your own, have or had legislation which requires the central bank to deliver not only price stability but other objectives as well. And we had a very wide range of objectives in our legislation previously. The new legislation reflects the conclusion that most economists had reached by the '80s, namely that the only thing monetary policy can deliver in the long term is an inflation rate, and the best inflation rate is price stability. The Act was in that sense a little unusual but totally consistent with the thinking of the time-that price stability should be the goal. I think the second factor was that, unlike central banks in the United States, in Germany, in Switzerland, and so on, we had instrument independence but not goal independence. To my knowledge, it was the first legislative embodiment of that clear distinction. In other words, the Act stipulated that the goal should be a matter for agreement between government and central bank on the appointment of the governor-which effectively means the government's got the whip-hand in terms of the goal choice-but the legislation also Interview with Donald Brash - The Region - Publications & Papers | T... ?... 1 of 16 9/05/2014 4:01 PM
made it clear that the Bank was to be totally independent in terms of delivering that goal, and indeed not only independent in delivering it but accountable for delivering it. So I think those features were unusual and indeed probably unique at that time. REGION : The system that existed before 1989 was more or less patterned after the British system?

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