As part of the Reserve Bank of New Zealand (RBNZ) Monetary Policy Challenge your team is required to make a monetary policy decision on the Official Cash Rate (OCR) and to explain and justify this decision in a 10 minute presentation on monetary policy.
Your presentation should be based on the topics covered in chapters three and four of the Monetary Policy Statement. It should provide an analysis of current economic activity in the New Zealand economy and link this back to inflationary pressures. Your policy decision should be consistent with achieving the medium term inflation target as set out in the current Policy Targets Agreement.
This information provides a basic guide to setting out the analysis in your presentation and identifies some key areas that you should include. You are not required to follow this precisely, judges will award marks for originality so structure your presentation in the way you think best supports your decision. However, there are a few very important points to note:
Present your decision at the beginning of your presentation. This indicates to the judges the position you intend to justify during your presentation:
e.g. "The Official Cash Rate (OCR) will remain unchanged at 7.25 percent."
Reserve Bank of New Zealand: Monetary Policy Statement, September 2006
In this section present your view of current economic activity and expectations of future behaviour in order to justify your decision. Focus on activity in key sectors of the economy. It is important to think about the link between activity in these sectors and ultimately how this relates back to overall inflationary pressures.
There is limited time to present your argument so focus on providing an overview of behaviour in the economy, concentrating on the sectors most relevant to your decision. Remember because monetary policy operates with delay, your analysis should seek to be forward looking.
Some general considerations:
Remember the aim of monetary policy is to maintain price stability. You should sum up your presentation by linking your view of the economy back to how you expect inflation to change over the next 18 – 24 months and indicate why this makes your policy decision appropriate.
One way of thinking about inflationary pressures in the economy is through the output gap:
Analysis and conclusions should be supported with evidence from Reserve Bank or external data sources.
Appropriate charts can aid your decision and help to communicate your ideas. However it is important to discuss any charts you include and they should be well labelled and fully referenced.
You are encouraged to consider a range of sources including (but not limited to) newspapers, private banks (e.g. Westpac, ANZ), and public sector organisations. However, remember that RBNZ economists are likely to have seen this information before, and will recognise it if you use the analysis directly.
Two particularly valuable sources are:
Examples of indicators you may like to consider are detailed in the Forecasting page
Also read the Judging criteria - this will tell you what the judges are looking for.
Read the official Monetary Policy Statements.
Remember that this is just a guide to help you get started – there are many different ways to present your ideas. It is important to use chapters three and four of the Monetary Policy Statement as a reference and also make use of all the additional material provided to assist you by the Monetary Policy Challenge.