For more than 20 years, including during vastly different economic conditions, monetary policy in New Zealand has been doing what it was supposed to do - keeping inflation low, said Reserve Bank Assistant Governor John McDermott today.
Speaking at a Bank for International Settlements' research workshop held in Hong Kong, Dr McDermott said: "The Bank's analysis on the recent business cycle underscores that the inflation targeting framework is an effective way to conduct monetary policy under a range of testing circumstances."
Low inflation and the credibility of inflation targeting had meant less volatility in price levels, he said.
"This is helpful for resource allocation, affecting longer term performance and for macroeconomic stability over the medium term," Dr McDermott said.
Inflation targeting remained a useful tool for the future, but its success did not mean the framework could not be improved, he said.
"Over the course of the past 20 years or so the framework has evolved to reflect lessons learned and is likely to evolve further in response to new developments," Dr McDermott said.
In particular, the Reserve Bank had increased its monitoring of monetary and credit information in the wake of the Global Financial Crisis.
"The Reserve Bank has also been looking into the effectiveness of some macroprudential instruments that may limit build-ups of problems in future periods of rapid credit growth," he said.
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