donald t brash : should the reserve bank of new zealand have eased as fast as the federal reserve? speech by dr donald t brash, governor of the reserve bank of new zealand, to the rotary club of auckland, auckland, new zealand, 21 may 2001. * * * introduction over recent days, the reserve bank of new zealand has puzzled a lot of people – indeed even angered a few! – because we have been slower to ease monetary policy than they have expected or wanted, and slower than central banks in some other countries. surely, it is argued, the reserve bank must be able to see that the world economy has slowed sharply, and monetary policy should be eased. surely, it is argued, the reserve bank must be able to see that the domestic economy has been sluggish, business and consumer confidence are down, and monetary policy should be eased. surely, it is argued, the reserve bank must be able to see that the drought has been serious and will have a potentially big impact on production next season, and monetary policy should be eased. surely, it is argued, the reserve bank must be able to see that the us central bank, the federal reserve, has eased policy by much more than has been the case in new zealand. given the record of growth with low inflation which the us economy has achieved over the last decade, surely this suggests that the reserve bank of new zealand should be following the fed's example, and easing monetary policy more aggressively. certainly, the american central bank has cut its official interest rate by 250 basis points since the beginning of the year. the australian central bank has cut its official interest rate by 125 basis points since the beginning of the year. and to date the new zealand central bank has cut its official interest rate by a rather more modest 75 basis points since the beginning of the year. and forecasts of the parts of the global economy of most relevance to new zealand, compiled in london by an organisation called consensus forecasts, continue to be revised down. back in november, as we prepared our december monetary policy statement, the consensus forecast for the 14 countries of most relevance to us had growth in those countries this year at 3. 5 per cent. three months later, that forecast had been revised down to 2. 9 per cent. now, the forecast is only 2. 3 per cent. surely, it must be obvious to the reserve bank that the world economy is going to continue to get weaker, and monetary policy must be

leading to increased housing activity and house prices. we will respond to the letter with careful consideration, outlining the trade - offs that exist and what we can do to assist. the monetary policy committee takes asset prices ( household wealth ) into consideration when assessing its policy decisions. the ‘ consumption ’ of housing is also captured in the 32 economic welfare and a dual mandate for monetary policy in a small open economy, jacob, p., ozbilgin, m., 2020 ( work in progress ) 33 philip bunn, andrew g haldane & alice pugh, “ has monetary policy made you happier? ”, staff working paper no. 880 ( july 2020 ). 34 hon. grant robertson, letter to rbnz governor, 24 november 2020 https : / / www. beehive. govt. nz / sites / default / files / 2020 - 11 / letter % 20to % 20rbnz % 20governor. pdf page 14 of 17 consumer price index, including rents, rates, construction costs, and housing transaction costs. 35 and, we acknowledge that lower real interest rates make residential mortgages more affordable, tempting increased housing purchases and building. however, there are many other factors impacting on house prices outside of the monetary policy committee ’ s influence. a historic undersupply of housing and restrictions on land supply are two widely acknowledged issues. more recently, with the impact of covid - 19, employment prospects have also tended to remain more positive for the traditional homeowning age group, compared to youth. and, kiwis who were living overseas returned home in the early stages of the covid - 19 pandemic, and fewer have left since, hence more housing demand. 36 access to affordable housing is an important issue for new zealand ’ s economic wellbeing, and we are pleased to be requested to assist the government ’ s thinking on this issue. distributional impact of monetary policy the impact of monetary policy decisions on wealth and income equality is another important topic for considering overall economic wellbeing. as janet yellen recently noted, despite the fact that the tools of monetary policy are generally not well - suited to achieve distributional objectives, it is nevertheless important that policymakers understand and monitor the effects of macroeconomic developments on different groups within society. 37 here at the bank we have undertaken an assessment of the international literature on the distributional impacts of monetary policy on wealth and income. our work highlights that it is unclear whether looser monetary conditions