Thirty years of inflation targeting in New Zealand: The origins, evolution and influence of a monetary policy innovation.

Nearly thirty years ago New Zealand ushered in a revolutionary approach to monetary\npolicy. This was formalised by the Reserve Bank of New Zealand Act 1989 which\nspecified price stability as the primary function of monetary policy and provided\noperational independence for New Zealand’s central bank. This innovation spawned the\nspread of more central banks around the world with a mandate to prioritise inflation\ntargeting. This paper explains the historical origins of the RBNZ Act, its design and the\nideas that influenced its design. It reviews how the practice of inflation targeting and the\nchoice of policy instruments have evolved. The paper includes a review of research\nevaluating the impact of inflation targeting in New Zealand and concludes with a\ndiscussion of contemporary issues including a proposal before the New Zealand\nParliament to introduce significant changes to the Act which could have important\nimplications for future monetary policy.