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Research on the impact of lower interest rates on wealth and income

Gulnara Nolan

About the research programme

The Reserve Bank is carrying out a wide range of research about the different ways changes in interest rates could affect the distribution of wealth and income in New Zealand. Each research paper is aimed at giving the bank (and other decision-makers) parts of the jigsaw puzzle, to help our understanding, rather than a complete picture all at once.

The first part of this ongoing research was a recent paper looking at the international evidence:

This paper showed there are winners and losers when interest rates are cut, but the international evidence is not clear that this always means the rich get richer and the poor are worse off.

Over coming months and years, the bank’s researchers will look at different aspects of how lower interest rates may affect different groups in New Zealand. For example, researchers are looking at the impact of monetary policy on New Zealanders’ incomes, and in future will look at the impact on housing wealth.

This research programme may or may not change our overall view of monetary policy- whether rates should be raised or cut and by how much. This distributional research is about the unintended consequences of monetary policy, not about the overall effectiveness of monetary policy in achieving our mandate.

The Reserve Bank’s overarching aim is to promote the prosperity and well-being of all New Zealanders. With monetary policy, our core focus is to support full employment and low and stable inflation.

Monetary policy remains an effective, but blunt, tool to achieve these goals. It is also important that we understand how changes in interest rates affect different groups, regions, and sectors in New Zealand. Understanding these distributional effects can help shine a light on areas where broader government policies might be able to help reduce the unintended consequences of monetary policy.

See our latest research paper: