Aspects of implementing unconventional monetary policy in New Zealand
This article provides an overview of the experience with unconventional monetary policies since the global financial crisis of 2007/8, and assesses the scope for unconventional monetary policy in New Zealand. While there is no need to introduce unconventional monetary policies in New Zealand at this time, it is prudent to learn from other countries’ experiences and examine how such polices might work in New Zealand if the need arises.
We find there is potential to utilise unconventional monetary policies. However, given the specific characteristics of New Zealand capital markets there are limitations on the extent that unconventional polices can be applied, and the instruments that can be used. Furthermore, in a small open economy, such as New Zealand, the way that unconventional policies affect the economy may differ from the experiences of larger countries. Certain risks are associated with unconventional policies that would need to be managed. Consequently, it will be important that the Reserve Bank communicates on the objectives and nature of any unconventional policies that may be implemented.
The Reserve Bank will continue to monitor other countries’ experiences with unconventional policies and undertake further research as New Zealand’s financial markets evolve.