zealand is consistent with this conditional coordination approach. in the monetary policy targets agreement we have financial stability as a secondary objective. this means that the monetary authorities need to think hard if an ocr decision might have adverse effects for financial stability. similarly, in the macro - prudential mou it is required that macro - prudential initiatives have regard to their potential impact on monetary policy. there remain many aspects of policy co - ordinations where we need to deepen our understanding. these include : • the quantitative effects of macro - prudential policy on macro - economic outcomes and their implications for monetary policy. • the scale and timing of spill - over effects between the ocr and our four macroprudential tools. • how best to coordinate ocr and macro - prudential policy decisions at different points of the economic and financial cycles, particularly when the two cycles are out of sync and the policies are not complementary. this is an active area of the academic literature and a priority area for our own research. i look forward to the insights that this work will give us for our future monetary and macroprudential policy decisions. references beau, d, l clerc and b mojon ( 2012 ) “ macro - prudential policy and the conduct of monetary policy ”, banque de france working paper, 390. borio, c and p lowe ( 2003 ), “ borio, c. and p. lowe ( 2002 ), “ asset prices, financial and monetary stability : exploring the nexus ”, bis working paper, 114. borio, c and h zhu ( 2008 ) “ capital regulation, risk - taking and monetary policy : a missing link in the transmission mechanism? ” bis working paper, 268. drehmann, m and juselius m ( 2012 ), “ do debt service costs affect macro - economic and financial stability? ”, bis quarterly review, september 2012. kohn ( 2013 ), “ the interactions of macro - prudential and monetary policies : a view from the bank of england ’ s financial policy committee, speech given to the oxford institute for economic policy, http : / / www. bankofengland. co. uk / publications / documents / speeches / 2013 / speech692. pdf. reserve bank of new zealand ( 2013 ), “ regulatory impact assessment : restrictions on highlvr residential mortgage lending ”, http : / / rbnz. govt. nz / financial _ stability / macro - pr

mortgage commitments at lvrs over 80 percent, and has led to a significant reduction in high - lvr lending. ( figure 3 ) initially, we estimated that the lvr restrictions would dampen annual growth in house prices by 1 – 4 percentage points ; house sales by 3 – 8 percent, and credit growth by 1 – 3 percentage points over the first year that the policy was in place. the evidence to date suggests that the dampening effect of the lvr restrictions on house prices has been broadly in line with these expectations. house sales have fallen by 13 percent since september, and there are early signs that this is beginning to translate into weaker house prices and credit growth. 3 ( table 3 ) while lvrs have a financial stability purpose, they have been an important consideration in our monetary policy assessment. the dampening effect of lvrs on house price inflation and credit is expected to reduce wealth and credit effects on consumption that might have otherwise increased due to a rapid expansion in house prices. this, in turn, is estimated to have reduced cpi inflation pressures by an amount similar to a 25 – 50 basis point increase in the ocr. reserve bank simulations of the counter - factual – what would have happened to house price inflation in the absence of lvr speed limits – suggests house price inflation would have been about 2. 5 percent higher than its current level. we are continuing to monitor the effects of lvr restrictions and will publish new estimates of their impact in the reserve bank ’ s may financial stability report. bis central bankers ’ speeches earlier this month, in response to broadening inflation pressures, the reserve bank began an ocr tightening cycle after three years of no change in the policy rate. given that the lvr restrictions began to moderate the housing cycle from october 2013, the monetary policy tightening cycle might have needed to be more accentuated in their absence. while the main benefit of the lvrs has been to redress the impact of the easier lending conditions, they may also have helped to take some pressure off the new zealand dollar exchange rate. what if the policies had not been “ conditionally coordinated ”? while purely hypothetical, if these policy decisions were being made on a strictly independent basis, we may have seen macro - prudential policy ‘ wait ’ for the coming monetary policy tightening cycle to slow the housing market. an absence of any macro - prudential measures may in turn have prompted the monetary policy tightening to have started somewhat earlier. to be clear, the