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

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