end, the target ( and therefore midpoint ) was changed to 1 - 3 percent in the 2002 pta. recent bank research has found that this change was accompanied by an immediate increase in long - run inflation expectations ( lewis and mcdermott, 2016 ). the 2002 pta also made the medium - term focus of monetary policy explicit, and firmly embedded the flexible approach ( see, for example, hunt, 2004 ). it changed the target from “ 12 - monthly increases ” to “ future cpi inflation outcomes … on average over the medium term ”. this medium - term focus has been an enduring feature of ptas to this day. the bank 15 the mci was a weighted summation of the exchange rate and short - term interest rate, with weights reflecting each variable ’ s medium - term effect on aggregate demand and thus inflation. the mci was used to identify the overall stance of monetary policy and to communicate the likely direction and extent of change in stance going forward. ref # 7482042 v2. 2 has interpreted this target to mean that it should set policy in order for inflation to remain or settle comfortably within the target band in the latter half of a three - year horizon ( bollard and ng, 2008 ). during the mid - 2000s, economic developments reignited concern about the monetary policy framework. although new zealand had been one of the faster - growing oecd economies since the early 1990s, this growth had been accompanied by the emergence of macroeconomic imbalances : a relatively large current account deficit, high house price inflation and household indebtedness, and a real exchange rate that had risen to levels sometimes regarded as unjustified by medium - term fundamentals ( rbnz, 2007b ). in early 2007, the government requested another inquiry into the monetary policy framework. the bank reiterated that there was no compelling evidence to suggest that these features had arisen from the design of the monetary policy framework. we recognised that with the benefit of hindsight, we had been slow to fully recognise the strength of demand and housing market pressure on inflation over the cycle. however, this was a feature of having to operate policy under uncertainty ( rbnz, 2007a and chetwin and reddell, 2012 ). we noted that solutions to new zealand ’ s imbalances were likely to lie in other policy domains, and suggested several ‘ supplementary stabilisation instruments ’. 16 following the review, the government decided not to make any changes to the rbnz

us extremely efficient at producing some things that we are effectively banned from selling to many of the consumers of the world. thus for example, although we are one of the world's largest cheese exporters, and have developed a range of sophisticated cheeses in recent years, we are limited to a tiny quota of about 0. 6 per cent of the us cheese market. if new zealand producers want to sell butter to japan, they find that japan has limited total butter imports, from all sources, to less than 2, 000 tonnes each year, with sales beyond that tiny quota facing a tariff of more than 500 per cent. our distance from world markets and a resource endowment which favours the production of goods which face major obstacles in international markets are facts of life. to make matters worse, we have compounded matters by creating some of our own obstacles to economic growth. for example, as a country we squandered a large amount of capital investing in projects of very low or negative value in the late seventies and early eighties, most as a result of strong government encouragement – the clyde dam, nz steel, and the synthetic petrol plant to name just three. scobie and mawson, op. cit. towards higher living standards for new zealanders : briefing to the incoming government 1999, the treasury. second, because of very high effective rates of protection in many parts of the manufacturing sector, we probably squandered even more capital over several decades by investing in industries where new zealand had no prospect of ever being internationally competitive. ( many studies have suggested that economic growth tends to be fairly closely correlated with the degree of openness of the economy, and, while new zealand is now a very open economy, that was not true until about a decade ago. ) third, we have paid a high price for years of encouraging investment in real estate while discouraging investment in plant and equipment – the result of the interaction between a period of high inflation and a tax system based on the assumption that prices are stable, plus perhaps the bitter memories of the 1987 share - market crash. fourth, we have paid a high price for not encouraging the acquisition of education and skills – the result of decades of protection for industries requiring only a modest level of skill and, perhaps, a welfare policy providing benefits of unlimited duration. fifth, we have paid a high price for tolerating an education system which produces too many people with inadequate literacy and numeracy skills, unable to fill the