Mr Sherwin discusses the origins of New Zealand's inflation targeting regime and its
evolution over the past decade
Speech by Mr Murray Sherwin, a Deputy Governor of the Reserve Bank of New Zealand, to
the New Zealand Association of Economists Conference in Rotorua, New Zealand on 1 July
1999.
A decade ago, during the course of 1989, the New Zealand Parliament devoted considerable
time and intellectual energy to the consideration of the Reserve Bank of New Zealand Bill,
later to become the Reserve Bank of New Zealand Act 1989.
That Act completely re-wrote the RBNZ's charter. The bulk of the Act - indeed almost half of
its 192 clauses - relates to prudential supervision. While the prudential material is interesting
in its own right, I won't be dwelling on it in this address. Rather, I will concentrate on the
origins of our inflation targeting regime, its evolution, and an assessment of our experience
with it over the past decade.
The origins of the 1989 Act lay primarily with Roger Douglas. Around the middle of 1986,
with memories of the 1984 election debacle still deeply etched in his mind, Douglas initiated a
discussion on means by which monetary policy could be made less susceptible to
manipulation for short-term political ends. Officials were asked to explore options that might
have that effect. Not too surprisingly, especially in the light of some of the academic literature
then circulating on the subject of the relationship between central bank independence and
long-run inflation performance, officials recommended reforms which would confer some
degree of operational independence on the Reserve Bank.
THE ORIGINS OF INFLATION TARGETING
Inflation targeting as we now understand that term - with multi-year medium-term targets in
an economy with liberalised prices, wages and financial markets - was pioneered in New
Zealand1. However, it was not an inherent part of the original conception of an independent
central bank. Rather, its genesis lay in the confluence of two sets of policy priorities in the late
1980's. Our inflation targeting evolved - at times abruptly, at times almost as painfully as
having teeth pulled - rather than being delivered fully formed and fully considered from some
quasi-academic ivory tower high above The Terrace.
Even before Roger Douglas had asked for specific proposals to reform the institutional
arrangements for monetary policy, the managerialist approach to the public sector and its
activities had been coming to the fore in New Zealand. Specifically, this took the form, later
enshrined in the State Sector Act and the Public Finance Act, of giving public sector managers
the authority to manage, but holding them directly accountable for outputs - i.e., the
measurable products or services that each agency was mandated or contracted to deliver.
In the Reserve Bank's case, it was difficult to define meaningful outputs. There were
suggestions that some form of monetary base measure might be appropriate, but this concept
failed when it proved impossible to identify a stable relationship between this particular
output and the sort of ultimate outcome - price stability - our political masters were seeking
from an independent central bank. Eventually, it was accepted that the only practical solution
was something of a hybrid. The Reserve Bank would be held accountable not for outputs, but
primarily for the judgements it reached in pursuing the desired outcome itself. This was to be
done mainly via the six-monthly Monetary Policy Statements, but also through an
employment contract for the Governor which would state the inflation goal directly. Note that
at that stage, it was not envisaged that there would be a high profile public role for the
employment contract - any more than most public sector CEOs' employment contracts are
ordinarily matters of high public profile.
The evolution of the Governor's "employment contract" into what we now know as the Policy
Targets Agreement (PTA) took place under pressure of another development. After
successfully driving down inflation from a 1985 peak in the high teens, Roger Douglas
became concerned that the public - including financial markets, employers and unions - were
expecting the Government to be content with progress to that point and that inflation and,
more importantly, inflationary expectations, were settling at around 5 to 7 percent. Without
consulting officials, or, apparently, his parliamentary colleagues, Douglas announced in a TV
interview on 1 April, 1988 that policy was to be directed to reducing inflation to "around 0 or
0 to 1 percent" over the following couple of years. This was as much a surprise to the Reserve
Bank as it was to the community generally. Douglas was aiming, with this announcement, to
influence inflation expectations and by that means to reduce the inevitable costs of
disinflation.
With the input of advice from officials over the subsequent few weeks, that initial
announcement crystallised as the 0 to 2 percent inflation target to be achieved by the early
1990's. It took real shape as a strictly defined target in the Bank's 1989 Annual Report and in
the 1989 Budget as one of a series of macroeconomic goals announced by David Caygill2.
It is the case that the 1989 Act was passed without a single dissentient vote in Parliament. Don
Brash has made that point on a number of occasions while also reminding us that one certain
dissenter, Rob Muldoon, was hospitalised at the time. However, it is also the case that despite
the bipartisan support evident on the evening of the vote, both major political parties struggled
to reach positions where they could support the passage of the Bill. Significant opposition or
reservations existed within both caucuses.
Reservations about the new framework were also evident in submissions made to the Select
Committee which considered the Bill. As the report of the Finance and Expenditure
Committee notes, 10 of the 23 submissions received raised concerns about the proposal to
assign monetary policy the single objective of price stability. Generally, and without
challenging the desirability of low inflation, those submissions sought inclusion of a reference
to real sector objectives as well. In the event, the FEC's report was quite unequivocal on that
point. "The Committee.... is firmly of the view that the primary function of monetary policy
should be that set out in clause 8(i). Members acknowledge that monetary policy should not
be made to wear the cost of inappropriate fiscal and micro-economic policies. Monetary
policy at the end of the day can only hope to achieve one objective, that is, price stability."
Of course, this was not a new insight or perspective on the appropriate objective of monetary
policy. To indulge a small historical diversion, it's interesting to look back at the 1931 report
of Sir Otto Niemeyer, the Bank of England official brought to New Zealand to advise on the
formation of a central bank. His report led directly to the establishment of the Reserve Bank
of New Zealand. Borrowing wording from the statutes of the Bank of Estonia, Niemeyer
proposed "stability of the value of its notes as the primary duty of the Bank," and required it
"to exercise control over monetary circulation and credit towards that end."3 That, argued
Niemeyer, was simply the standard specification for a central bank at that time. As it
transpired, his original proposal for the new central bank's objective was amended slightly
during the drafting of the 1933 Act by the addition of the words "to the end that the economic
welfare of the Dominion may be promoted and maintained."
That amendment, of course, parallels the words added to the Policy Targets Agreement in
December 1996. The PTA now reads that "... the Bank shall formulate and implement
monetary policy with the intention of maintaining a stable general level of prices, so that
monetary policy can make its maximum contribution to sustainable economic growth,
employment and development opportunities within the New Zealand economy".
WHAT IS INFLATION TARGETING?
A decade on from the passage of the new Act, inflation targeting has become a very widely
practised, researched and analysed policy. But what is it?
Bernanke et al4 provide the following definition:
"Inflation targeting is a framework for monetary policy characterised by the public
announcement of official quantitative targets (or target ranges) for the inflation rate over one
or more time horizons, and by explicit acknowledgement that low, stable inflation is monetary
policy's primary long-run goal. Among other important features of inflation targeting are
vigorous efforts to communicate with the public about the plans and objectives of the
monetary authorities, and, in many cases, mechanisms that strengthen the central bank's
accountability for attaining those objectives".
In providing that definition, the authors take some care to describe inflation targeting as a
framework as opposed to a rule. In other words, inflation targeting fits somewhere between
the extremes which feature in the "rules versus discretion" debate which raged in monetary
policy circles in earlier years. Inflation targeting is not "automatic" in the sense of a
Friedmanlike rule. But nor does inflation targeting allow the central bank full discretion. Rather,
inflation targeting can be described as a form of "constrained discretion". To quote Bernanke
et al again, "By imposing a conceptual structure and its inherent discipline on the central
bank, but without eliminating all flexibility, inflation targeting combines some of the
advantages traditionally ascribed to rules with those ascribed to discretion."5
While we use the label "inflation targeting", Lars Svensson6 uses a variation on that term
which he regards as a more accurate description of the process - namely, "inflation forecast
targeting". Given the lags inherent in the operation of monetary policy, he argues that the
essence of inflation targeting is a commitment to adjust policy to ensure that a credible or
unbiased forecast of future inflation falls within the specified target.
However we choose to define inflation targeting, it has certainly gained a very rapid
acceptance around the world in a diverse range of countries. Table 1 lists the countries
currently engaged in formal inflation targeting, with interest growing rapidly at present. There
are many variants in the approach, but the essential elements described above are common to
all.
Table 1
Inflation Targets Internationally
Country Date Adopted Target Target variable
Australia 1993 Average of 2-3% 'Underlying' PI up until
over the medium October 1998; CPI
term thereafter
Canada February 1991 Midpoint 2% CPI
+ 1% band
Finland* February 1993 2% CPI excluding indirect
no explicit taxes, subsidies and
band housing-related costs
New April 1988 0-3% CPI excluding interest
Zealand 0 - 2%
originally
Spain* November 1994 2% CPI
Sweden January 1993 Midpoint 2% CPI
+1% band
United October 1992 2.5% Retail price index
Kingdom +1% reporting excluding mortgage
range interest payments
* Now members of the Euro area
5
Bernanke et al, 1999
6
Svensson, 1997
NB. Czech Republic, Republic of Korea, Israel, Mexico and Chile also describe themselves as
inflation targeters, but not necessarily with explicit, public commitments to specific targets of
the sort listed above.
THE EVOLUTION OF THE MONETARY POLICY FRAMEWORK
It seems a decade is a long time in monetary policy. We have seen one full business cycle pass
and that has been extensively reviewed, documented and analysed in recent Reserve Bank
Bulletins. While the Reserve Bank Act has not changed in any significant respect, the way we
go about "doing" monetary policy has changed over that time. The formal inflation target has
been widened, the way we describe the targeted measure of inflation has shifted and our
approach to dealing with the impact of external shocks or "caveats" has changed.
In addition, a number of less formal innovations have occurred. Under this heading I include
the development, and subsequent demise, of the housing adjusted price index (HAPI); the
emergence of the "underlying inflation" concept, and its evolution into, effectively, the
accountability measure for inflation performance before it was eased out of the limelight in
1997; the more recent extension of the policy horizon from around 4 quarters to the current 6
to 8 quarter timeframe; and the shift in thinking about the role of the exchange rate in the
practice of inflation targeting, as embodied in both the dropping of the MCI from its direct
implementation role and the extension of the policy horizon. Policy implementation has also
gone through several stages before reaching the current Official Cash Rate (OCR) structure.
Some degree of change was probably inevitable and even a healthy sign. As the pioneers of
the inflation targeting process, it would have been a surprise if all aspects were "right" from
day one. Perhaps more importantly, even if the framework had been conceived immaculately,
the environment in which we operate today is not the same as that applying a decade earlier.
Some degree of adaptation was necessary simply to meet those changing circumstances.
Let me deal with just a couple of aspects of the changes over the decade. Firstly, the
movements along the spectrum between what Svensson refers to as "strict" and "flexible"
inflation targeting, and secondly, the evolution of the implementation framework from a
quantity based regime to the current interest rate based (OCR) structure.
Strict or flexible inflation targeters?
As already noted, the initial move to inflation targets arose from a wish to influence
inflationary expectations by stating clearly the Government's commitments. The hard-edged
character of the targets emerged a little later, partly as a consequence of the Bank taking up
the role of shaping general inflationary expectations through a vigorous external
communications programme that stressed the Bank's commitment to the targets and the
Governor's personal accountability for achieving them. While clearly a useful device for
communicating the strength of the Bank's resolve to a wider public audience, the portrayal of
the inflation target as hard-edged also carried risks given the lags and uncertainties in
monetary policy decision making. A "strict" approach to inflation targeting encouraged a
search for precision in calculating "core" or underlying inflation measures for accountability
purposes and may have encouraged a shortening of policy horizons as the direct price effects
of the exchange rate became more important to the achievement of the target outcomes. Both
of those effects were evident in our monetary policy through the past 10 years.
As inflation expectations have subsided, it has been possible to assume a degree more
flexibility in the regime, and the current PTA reflects that. Rather than detailed calculations of
the impact of specific shocks, as embodied in the old underlying inflation measure, the PTA
now explicitly acknowledges that outcomes will occasionally fall outside the target range for a
variety of reasons, even when the Bank is "constantly and diligently" striving to deliver price
stability. In those circumstances, the Bank is required to provide a satisfactory rationale for its
judgements. Ultimately, the Bank's non-executive board members must assess the quality of
those judgements and report their findings to the Treasurer.
Embodied in the shift in emphasis over the past year or two has been the analytical work
undertaken in reviewing the past business cycle. I won't attempt to summarise that, since it
has been published in recent Bulletins. But some key considerations have emerged with
greater clarity than was previously available to us. These relate to the possible trade-off
between volatility of inflation and output; the nature of the shocks we are likely to experience
over the course of a business cycle; the nature of the interactions between those shocks, the
inflation targets, and alternative policy reaction rules; and whether movements of the
exchange rate are best considered to have their origins in "real" or "portfolio" shocks in the
first instance.
The judgements which we take from that work are:
the narrower the target range the more active monetary policy must be;
•
more activism implies more variability in interest rates, the exchange rate, and perhaps
•
output; and (up to a point) less variability in inflation;
• lower inflation expectations allow for a longer policy horizon, and less active monetary
policy.7
Those judgements fit well with the wider target range introduced in December 1996 and with
the shift in thinking about the exchange rate. Based on research undertaken on the nature of
the shocks commonly experienced by the New Zealand economy, we now assume, in the first
instance and in the absence of evidence to the contrary, that shifts in the exchange rate are
'real' in character. As such, they do not require an immediate and offsetting interest rate
adjustment to maintain longer-term price stability. The direct price consequences of an
exchange rate movement shift in response to a real shock are likely to be transitory and, for
that reason, are best ignored. In this respect, we have moved in the direction of the Reserve
Bank of Australia. This shift in thinking is consistent with our dropping of the MCI from its
central role in the implementation structure. In effect, the "banded" MCI approach we were
using assumed exchange rate movements to be "portfolio" in nature. This shift in thinking on
the exchange rate is also consistent with the lengthening of the policy horizon.
In essence, we are accepting the prospect of somewhat greater variability in inflation
outcomes around the mid-point of our target range, against the prospect of a little less
variability in the instruments of monetary policy and perhaps in output. In doing so, we
recognise the risk that the inflation target may be breached more frequently, and that the
judgements we will be confronting with each quarterly Monetary Policy Statement have
become more difficult. If we get those judgements wrong too often, we risk undermining
public confidence in the Bank's capacity to deliver consistent price stability and in that way
could hinder, rather than enhance, overall economic performance.
Implementation structures
One aspect of the monetary policy regime that has given rise to repeated stresses and
distractions is the implementation regime. The regime emerged in the late 1980s as essentially
a quantity-based structure - first centred on the Primary Liquidity (PL) measure and then the
settlement cash target. We were probably unique, at least within the OECD, in having no
officially set or targeted interest rate. The preference for a quantity-based structure had its
roots in our reluctance to fix a particular interest rate in the midst of the structural reforms and
deregulation of the 1980s, probably encouraged by a degree of "frustrated monetarism" which
continued to hope that some stable and usable relationships would emerge between prices and
some form of money or credit aggregate.
Those relationships did not emerge. While the implementation structure formally rested on the
quantity of settlement cash provided to the banking system, increasingly the de facto vehicles
for effecting changes in monetary conditions were statements based variously on TWI comfort
zones, 90 day bank bill rates, and, briefly, MCI comfort zones. At times, references to the
shape of the yield curve also served to reinforce a position.
Finally, in February of 1999, the quantity-based structure was abandoned in favour of a more
conventional arrangement which targets the overnight cash rate.
The reasons for this shift were fairly straightforward in the end. The settlement cash target
enabled us to indicate the desired direction of change in monetary conditions, but not the
extent of change. As became clear, the relationship between the quantity of settlement cash
made available to the system and prevailing monetary conditions was very elastic. For that
reason, the settlement cash target ceased to be an effective policy instrument or a reliable
policy signal. The MCI-based structure was intended to improve the communication of policy
intentions, while explicitly recognising that both interest rates and the exchange rate are
important to the monetary policy process in a small open economy. But any gains on that front
were lost in the noise of short-term interest rate volatility. To be fair to the MCI, if anyone
feels the need, we should recognise that it was put to a very stiff test with the onset of the
Asian crisis and the accompanying sharp fall in the exchange rate. Any implementation
structure was likely to experience a degree of stress through that period. Moreover, the
concept of the MCI as a broad indicator of the overall stance of policy remains valid. What
was unsuccessful was its direct application in intra-quarter policy implementation.
In any event, the OCR is now in place, and appears to be working well. Certainly, short-term
interest rate volatility has declined markedly, and that has been welcomed. Also welcome has
been the much reduced frequency of Reserve Bank Open Mouth Operations intended to guide
monetary conditions in a direction compatible with the longer term policy objectives and the
renewed capacity to maintain focus on policy rather than 'tactics'. But we need to bear in
mind that the OCR structure has so far operated in fairly benign circumstances, and that we
certainly haven't escaped the prospect of periodic stresses and awkward decisions.
Finally, it is worth reminding ourselves that while day-to-day implementation structures have
attracted a lot of attention over the past decade, the real action in monetary policy was
elsewhere. What matters most in monetary policy are decisions on the policy stance over the
course of the business cycle. In our case, the outlook for inflation is re-assessed with each
quarterly forecast round and the monetary conditions required to deliver the required
outcomes are reset. For the effective conduct of monetary policy over the longer haul, it is the
quality of those decisions taken each quarter that is fundamental, not the particular
implementation structure employed between those resets.
ASSESSING THE NEW ZEALAND EXPERIENCE
In one sense, assessing the success or otherwise of New Zealand's inflation targeting regime is
perfectly straightforward. Monetary policy has a single goal and whether that has been met or
not is transparently obvious. We need only refer to figure 1 to make a judgement.
The message in that figure is a positive one. Inflation fell to the target zone promptly, and has
stayed within, or close to, the target range since. The exception of the 1995/96 period, when
inflation was a little above the target range, was minor when taken in broader context.
The critics could reasonably respond with a "So what? Much of the world has managed to
reduce inflation over that period, most without the need for a regime as strict as that employed
by New Zealand". That, of course, is perfectly true. However, New Zealand had previously
managed to produce and sustain markedly higher inflation than others in the OECD. What has
happened under inflation targeting is a drop, not just in our absolute inflation rate, but also in
our relative inflation rate. Compared to OECD averages, New Zealand's inflation has moved
from very much at the top end of the spectrum to the mainstream.
ANNUAL INFLATION RATES:
NEW ZEALAND AND SELECTED OECD COUNTRIES
(Sources: Statistics New Zealand and International Financial Statistics, RBNZ
calculation)
Note also that our current inflation performance is not, in any sense, extremist by international
standards. Rather, it sits at or about the OECD average.
However, an assessment that stopped at inflation performance alone would be simplistic. As
we have noted on many occasions, price stability is not an end in itself. Rather, it is a means
to an end. Price stability is targeted only because that is the best contribution that monetary
policy can make to broader economic welfare. So has our monetary policy made a positive
contribution to our economic welfare more broadly defined?
The key criticisms one hears of monetary policy relate to concerns that it has constrained
growth to levels lower than could otherwise be sustained, that it has been correspondingly
hostile to employment or even "requires" a given level of unemployment to meet the inflation
target, and that it has damaged export performance by maintaining an overvalued exchange
rate and excessively high interest rates. The latter point, of course, is relevant to our weak
current account and associated high levels of external indebtedness.
Those are all criticisms that the Reserve Bank takes seriously. Our recent research
programmes have focused on reviewing the experience of the past business cycle to both
uncover and describe the stylised facts, and to analyse the key drivers in that cycle.
Again, without wanting to review that work in detail, it does show that the 1991 to 1997
expansion was both long and strong relative to the cycles that preceded it. That does not seem
to support a proposition that inflation targeting, or the particular version of it practised in New
Zealand, is inherently hostile to growth. Likewise, the employment creation which
accompanied that growth cycle was strong, both relative to the two previous decades and
relative to the 1990s experience of our peer group in the OECD. Certainly, we see nothing
inherent in an inflation target that should "require" particular limits to unemployment levels or
constraints on employment creation. As the US has been demonstrating with great clarity over
recent years, strong growth, low levels of unemployment and stable, low, inflation can
coexist for a sustained period of time in the right circumstances. Of course, that particular story
has yet to be concluded, and it has far more characters in it than just Mr Greenspan's
monetary policy.
The proposition that monetary policy has been persistently too tight, with interest rates and the
exchange rate persistently too high, is difficult to reconcile with inflation outcomes that have
been persistently above the mid-point of the target range. Our recent work has given us a
pretty good understanding of the "real" influences that shaped the past cycle.8 Factors such as
the surge in immigration, the associated house price cycle, the strength of the external sector
early in the cycle and the influence of fiscal policy later in the cycle go a long way to
explaining why interest rates and the exchange rate behaved the way they did.
Would a different monetary policy have led to less impact on the tradeables sector, and
possibly to a better current account outcome? I find it difficult to accept that case. The
different monetary policy sought is generally an easier monetary policy. The most likely
outcome of an easier monetary policy would have been higher inflation, a stronger and more
sustained asset price cycle and, with that, the same sort of pressures on the real exchange rate
and the tradeables sector as were experienced - albeit over a more extended period of time.
A couple of points to bear in mind though. First, over much of the past decade, monetary
policy has been engaged in a process of consolidating price stability - of ensuring that
inflationary expectations are reduced and that public confidence in the durability of price
stability is reinforced. As such, we could probably have expected monetary policy to be, on
balance, somewhat restraining. For that reason, I don't assume that the past decade is "as good
as it gets" or in any sense the norm for the longer-term behaviour of monetary policy. But the
key to that lies with the evolution of inflationary expectations.
Secondly, monetary policy has acquired a high degree of public prominence, in large part a
product of the vigorous campaign to influence inflationary expectations. I suspect that we
have left the public with an impression that monetary policy is the source of almost every
wobble experienced in the economy, while masking the real shocks that monetary policy is
often responding to. One consequence of that is a tendency to look to monetary policy to solve
all manner of economic difficulties. We're not alone in that, of course. There seems to be a
widespread but equally erroneous impression in the US that Alan Greenspan is the source of
all economic good and evil. But such prominence for just one component of macro-policy is
unlikely to lead to realistic and balanced public debate, and is ultimately destructive of good
outcomes.
THE LESSONS LEARNED
In a recent review of the Australian experience with inflation targeting, Glenn Stevens,
Assistant Governor of the RBA, observed "There are maybe six things we have learned about
monetary policy in two centuries of economists and others thinking about it:
• monetary policy affects principally, or only, prices in the medium term;
• it affects activity in the short term;
• because of lags, policy has to look forward; but
• the future is uncertain, as is the impact of policy changes on the economy;
• expectations matter, so giving people some idea of what you are trying to do, and acting
consistently, is useful;
• an adequate degree of operational independence for the central bank in the conduct of
monetary policy is important."9
Actually, Stevens footnoted a seventh candidate for his list that I thought worthy of inclusion
- namely, "that monetary policy - and for that matter most other policies - usually can't do
everything that people might hope for."
That list is certainly consistent with my own thinking. However, we can add a few more
specific lessons from our experiences over the past decade.
• Despite the effort devoted to trying to reduce the public's inflation expectations, and with
that, the costs of disinflation, what really matters in terms of expectations is performance.
It is the constant delivery of price stability that causes expectations to adapt to the new
reality.
• Forecasting is difficult. Given the lags inherent in monetary policy and the consequent
need to be forward-looking, we will continue to work on enhancing our forecasting
capacity. But it's a tough game, especially around the turning points of the cycle. And as
much as we try to look forward in shaping our monetary policy, our evolving policy stance
is inevitably heavily influenced by new data and views of the recent past.
• What is happening internationally matters. Our financial markets are increasingly
integrated with those abroad. Shocks, surprises and policy decisions elsewhere are
reflected in our markets instantly. Monetary policy in New Zealand will inevitably be
influenced by, and have to react to, developments abroad.
• Even if the inflation target framework has had a fairly modest influence on the public's
inflationary expectations, it has certainly exerted a very direct impact on the Reserve
Bank's approach to its monetary policy task. The target is at the front of our minds with
each policy decision. I have no doubt that the framework has influenced the behaviour of
the Bank's Monetary Policy Committee and the choices made by the Governor at key
points.
CONCLUDING COMMENTS
I have described the origins of our inflation targeting regime and its evolution over the past
decade. With inflation expectations now better anchored at a level consistent with our "price
stability" mandate, we see less need to react aggressively to anything and everything that
might take inflation towards the edges or even outside the target range in the short run.
Rather, we are focussed on policy settings which should ensure that inflation a year or two
ahead will be at about the centre of the target range. In short, we have shifted the emphasis
9
Stevens, 1999
from staying within the edges of the range in the short run to having inflation at about the
mid-point in the medium term. At the margin, this should result in less short-term volatility in
monetary policy.
But I shouldn't make too much of that evolution. While we think that there may be more
scope for flexibility, we shouldn't overestimate that scope, nor expect too much from it. It
remains as true today as a decade ago that the most important contribution that monetary
policy can make to real economic growth is through maintaining price stability, and we are
not about to subordinate that objective in the interests of a policy approach that implies we
can buy a bit more growth by tolerating a bit more inflation. We can't. Nor has an