Macro-Prudential Decision Framework

From the latest Reserve Bank Bulletin. There are many subjective assessments of the factual situation at hand in this diagram. I think 2013 marked the beginning of the end for inflation targeting in New Zealand. Even if Labour/Greens don’t win the election, the median voter first home buyer now thinks of the Reserve Bank as the government agency that stopped them from buying their first home with LVR restrictions.

The precious snowflakes of my generation don’t like being told no, and will now be ripe for the picking as the election looms – promises of affordable housing would have nothing on any major party campaigning on “forcing the Reserve Bank to consider ordinary Kiwis” or other nebulous feel good nonsense.

Despite the success of inflation targeting and the low levels of inflation we see now, I’m worried that we’ll look back to this year and mark it as the start of a new chapter in independent monetary policy that ends up looking like a complete rollback to the 1970’s.