Reserve Bank of New Zealand Bulletin articles
(NB. If you do not have the free Acrobat reader software necessary to
read these discussion papers already installed, go to the Adobe website.)
December 2006 (Vol. 69, no 4)
Articles
By Rachel Holden
Under the Policy Targets Agreement, the
Reserve Bank is required to keep future CPI inflation outcomes between 1
percent and 3 percent on average over the medium term. The headline CPI
inflation rate provides some information on the strength of current and future
inflation pressures, but can often be clouded by temporary fluctuations. Core
inflation measures attempt to abstract from these temporary fluctuations to
better inform us of the underlying trends in inflation. This article outlines a
number of criteria that can be used to assess the relative merits of possible
measures of core inflation. It then analyses a range of alternative core
inflation measures against these criteria and draws some conclusions as to which
measures might best serve as core inflation indicators in New Zealand.
By Willy Chetwin
Foreign-owned banks play an important role
in New Zealand’s financial system. This article discusses the Reserve
Bank’s local-incorporation policy, which is one of the key elements in the
policy framework to minimise the risks and maximise the benefits of hosting
foreign-owned banks. The article identifies some of the benefits and risks of
hosting foreign-owned banks; it discusses the local-incorporation policy rules
and how the policy fits into the wider set of rules affecting banks; and
discusses how the policy promotes the soundness and efficiency of New
Zealand’s financial system, and avoids the damage to the financial system
that could arise from the failure of a foreign-owned bank.
By Loretta DeSourdy
This article discusses the Reserve Bank
of New Zealand Amendment Act 2006, passed in October, which implements the
Government’s response to the recommendations of the Trans-Tasman Council
on Banking Supervision. The Act amends part of the existing Act passed in 1989
and is being matched by equivalent legislation in Australia. The legislation
provides greater assurance of cooperation between New Zealand and Australian
regulators by imposing obligations on them to consult each other and to avoid
actions that may have a detrimental effect on financial stability, without
unduly constraining the actions of the regulators. There have also been some
other minor amendments to the 1989 Act, which are also discussed in the
article.
By Ian Nield
In July 2006, the Reserve Bank commenced
implementation of changes to its liquidity management regime. Under the existing
regime, there had been increasing evidence of insufficient liquidity in the
banking system at various times and some inefficiencies in the way in which it
was provided. Under the new regime, there has been a significant increase in the
level of cash left in the payment system overnight. This article details the
motivation for the changes and the key features of the new regime and provides
some initial observations of their impact. The article notes that the
implementation of the new regime, which occurred over a four-month period, has
been largely uneventful and that there have been few signs of stress since the
Reserve Bank liquefied the system.
By Bob Buckle and Aaron Drew
In early 2006, at the request of the Reserve
Bank of New Zealand and New Zealand Treasury, four international academic
experts and practitioners in the macro economic policy arena visited New
Zealand. Their brief was to critically examine New Zealand’s macro
economic policy framework and consider whether alternative, possibly
non-conventional, policy tools might be used to provide a smoother ride for the
externally exposed sectors of the economy over the business cycle. A conference
was held held in Wellington on June 2006 to present the findings of the visiting
experts and a volume of the conference proceedings was published in October. The
following is the overview chapter from the volume written by the Editors. The
full volume can be downloaded from www.rbnz.govt.nz
