partly to the sizeable gaps that opened up at various times between our interest rates and those in some other countries, including japan, the us and switzerland. rising commodity export prices have also played a role. there is little we can do about other countries ’ interest rates or international commodity markets. to state the obvious, we run new zealand ’ s monetary policy according to new zealand economic conditions, and other central banks run their monetary policies according to their own economic conditions. the australian dollar has also strengthened markedly in the past two or three years, largely reflecting similar factors. dealing with asset price cycles and their consequences for price stability is another issue that central bankers across the world are grappling with. housing market booms occurred this decade not only in new zealand, but also the uk, australia and the us. the aftermath of these booms is still playing out currently in new zealand, the uk and the us at least. on the positive side, there are things that can be done to enhance the environment within which monetary policy operates. these include a wider government policy framework that at least does not contribute to the cyclicality of the economy, and to the tendency for inflation shocks to become entrenched. even better are government policies that reduce cyclicality – such as the well - known “ automatic stabiliser ” features of well - designed fiscal policy frameworks. although economic stabilisation is not the primary motivation for these other policy areas, we do work with other government agencies to try to enhance the stabilisation properties of government policy where possible, including reducing structural distortions that tend to generate economic cycles. these issues motivate us to continue to look for other instruments that might support the ocr as tools to promote macroeconomic stability. we also look forward to the findings of the finance and expenditure select committee ’ s inquiry into the future monetary policy framework. in both the supplementary stabilisation instruments work we did in 2006 and in our submission to the fec ’ s inquiry, we reported that there did not appear to be any magic bullets among the range of potential instruments considered. having said that, we did find that certain adjustments to tax and other regulatory structures might reduce their contribution to the cyclicality of the economy. analysis of the other instruments and approaches suggested they would be either ineffective in the long run, or would introduce large economic distortions. as noted earlier, the differences in central bank mandates, inflation targeting frameworks and monetary policy conduct across countries are not large enough to explain

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 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 anything changed in terms of the real drivers of new zealand ’ s growth performance. those are found in how productive, innovative and creative we are, and how well we market what we produce to the rest of the world. if long - run price stability is the most important contribution that monetary policy can make to our broader economic welfare, is inflation targeting the best monetary policy framework available to us? you won ’ t be surprised to hear me answer with a clear ’ yes ’. as i have described, we found our way into inflation targeting, partly as a process of elimination, partly by accident, and partly by way of some original thinking about old problems. when we