some policy lessons from a year of covid - 19 a speech delivered to the 2021 new zealand economics forum university of waikato on 4 march, 2021 adrian orr, governor with special thanks to my reserve bank colleague karsten chipeniuk, and many others who provided wise copy and comment. introduction tena koutou katoa, welcome everybody. thank you for the opportunity to speak today on an important and live topic ‘ the policy lessons from a year of living with covid - 19 ’. in the beginning … from late - 2019 citizens of the world have watched the covid - 19 virus evolve into a global pandemic. we observed global decision makers face what seemed an incalculable dilemma : whether to implement measures to contain the spread of the virus - potentially sacrificing lifestyles and livelihoods - or to endure the health consequences of allowing the virus to spread. this policy dilemma was quickly, and unfortunately, resolved by compounding hospitalisations, threatening the sustainability of health care systems. policy inaction was not an option and social mobility has been dramatically curtailed as a result. in aotearoa, new zealand, we have now been living in this constrained world for a year. the level of social restrictions has fluctuated with our covid alert levels – as we have seen in the events of this week – between the extremes of being one of the most mobility - constrained societies on the planet to one of the most free ( figures 1 and 2 ). as citizens, our economic fortune has been closely linked to these actions. figure 1 : cross - country lockdown comparisons source : corona virus government response tracker from oxford university ( hale et al., 2020 ) figure 2 : international arrivals at the reserve bank of new zealand, te putea matua, we were also watching this global health crisis evolve and brew into a pending economic crunch. however, we were also in the midst of preparing a broader range of monetary policy and financial stability tools to bolster the resilience of new zealand ’ s financial system. this is our kaitiaki ( guardian ) role. 1 our work agenda followed largely from lessons learnt from the global financial crisis a decade earlier. our efforts included increasing banks ’ liquidity, capital buffers, and risk management awareness and ownership. we were also developing additional monetary policy tools to be used if the official cash rate ( ocr ) reached a lower nominal bound. and, we were finalising the implementation of a superior payment and

interest rates can impact on the return on capital ( profits ) and the return on labour ( wages ). our work is ongoing as to which channels are more important and under what circumstances. 13 the future of cash – te moni anamata 14 macroeconomic research after the crisis, remarks by janet l. yellen at the 60 th annual economic conference sponsored by the federal reserve of boston, october 14, 2016, https : / / www. federalreserve. gov / newsevents / speech / files / yellen20161014a. pdf 15 distributional impact of monetary policy, leong, j., rbnz 2020 ( work in progress ) the house as a home and an asset what is clear for one monetary policy transmission channel, however, is that lower interest rates assist in inflating asset prices, with the subsequent ‘ wealth effect ’ supporting spending by the owners of these assets. this ‘ wealth effect ’ directly benefits the owners of the assets, but it only indirectly impacts others in the economy through the subsequent increase in economic activity and jobs. the impact of low nominal interest rates and significant fiscal stimulus on asset prices is very evident over recent years. global equity market prices have risen to historic highs both in market capitalisation terms and relative to companies ’ underlying earnings ( figure 5 ). house prices have also risen in general across many of our trading partners and here in new zealand, especially relative to household incomes. given that adequate housing is a basic economic need, affordable housing and sustainable house prices will always be in the front line of economic policy importance. the reserve bank must have a clear understanding of the impacts its policy decisions have on the housing market both directly and indirectly – that is both our monetary and financial stability policies. figure 5 : asset prices in new zealand and around the world source : bloomberg, reinz before talking directly to the impact of the bank ’ s policies, i briefly allude to the many factors – including the level of interest rates – that impact on both housing affordability and house prices ( figure 6 ). recent studies have identified housing supply as the most significant determinant of house prices in new zealand, with responsive housing supply essential for ensuring positive and sustainable housing outcomes. 16 likewise, housing demand factors can influence house prices, but increasing or suppressing housing demand generally only has a temporary impact on house prices and affordability. 17 ensuring house prices are sustainable, thus requires coordination and consistency across many government policies and agencies and non - government participants