Who should set the cash rate?

June 21st, 2013 at 7:00 am by David Farrar

The Greens have proposed that the Board should set the official cash rate, not just the Governor. It’s a reasonable debate to have, but one that seemed familiar. I was sure the issue had been canvassed in the past as part of an independent review. I asked if my recollection was correct and he responded:

David, you are almost correct. Cullen asked Lars Svensson to conduct a comprehensive review of the whole framework. At the time, in 2000, Svensson was a leading academic, at Yale from memory. Being Swedish, he had the advantage of being from a country regarded as “moderate” in political terms and, like New Zealand, a country very dependent on trade, with a floating exchange rate. He has since become one of the Deputy Governors of the Swedish central bank. 

He gave the New Zealand framework top marks, describing it as “world’s best practice”, but he did say that he thought that having all monetary policy decisions vested in the single person of the Governor was risky. (Fortunately for me, he said I had done a good job!) He suggested that instead monetary policy decisions should be taken by a small internal committee of senior RB staff – not by the board of (outside) directors because of the potential for conflicts of interest. Both the Treasury and the non-executive directors of the Reserve Bank recommended that New Zealand stick with the single decision-maker model because that makes it easier to pin the blame if monetary policy doesn’t deliver what the Policy Targets Agreement (the agreement between Minister of Finance and Governor) requires to be delivered.

It is a fair point, that if you make the decision a joint one by the Board, it makes it harder for there to be accountability for any failure in monetary policy.

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21 Responses to “Who should set the cash rate?”

  1. burt (7,950 comments) says:

    Accountability for fiscal policy is not something left leaning governments ever concern themselves about. I wouldn’t be surprised if the Green’s mandated that poor outcomes had to be blamed on the failed policies of the 90′s as they repeat them and crank up the printing press.

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  2. Simon (706 comments) says:

    The Feds have said they will stop monetising debt next year and bonds, stocks & commodities worldwide have plunged.

    The train has just crashed off the tracks and some people are worried about the train’s timetable. The RBNZ who take their orders from the Fed Reserve should be closed down. It is a failure.

    If central banks keep printing money then inflation moves from the current massive asset inflation into the wider economy and interest rates go up. If central banks stop printing money interest rates go up as well as there is not the money supply to support the low rates. Ie Central banks stop buying govt & private debt with printed money.

    The OCR. Christ some people live in a bubble. Central bank planning is a failure. Given worldwide & NZ debt levels its over, beginning of the end.

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  3. bhudson (4,736 comments) says:

    With it being Norman, the immediate question that sprung to mind was “who appoints the RBNZ board members.”

    Somewhat closely followed by “would that give Norman the idea that he could exert enormous influence over their decisions without being seen to be doing so (overtly at least)?”

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  4. Redbaiter (7,865 comments) says:

    Brash should have been our PM and the country would have been so much better off.

    But for chrissakes what is wrong with the man describing Sweden as “moderate” and taking the advice of a Swedish academic from Yale in respect of monetary policy??

    Sweden? Yale? Academic???

    FFS..!! These closeted Keynesian idiots are advocates of policies that are crippling economies all over the western world.

    If he’d said Switzerland he may have been able to make the point with some validity. But Sweden? Moderate?? FFS. Compared to what??

    As for the RB. Only one real solution. Bin it.

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  5. Redbaiter (7,865 comments) says:

    A link Dr.Brash needs to read-

    In its examinations of more than 150 departments and upper-level administrations at the 32 elite colleges and universities, the CSPC found that the overall ratio of registered Democrats to registered Republicans was more than 10 to 1 (1397 Democrats, 134 Republicans). Although in the nation at large, registered Democrats and Republicans were roughly equal in number, not a single department at any of the 32 schools managed to achieve anything even remotely approaching parity between the two. The closest any school came to parity was Northwestern University, where 80% of the faculty members were registered Democrats and 20% were registered Republicans. At other schools, the ratios of faculty Democrats to faculty Republicans were as follows:

    Brown University: 30 to 1
    Bowdoin College: 23 to 1
    Wellesley College: 23 to 1
    Swarthmore College: 21 to 1
    Amherst College: 18 to
    Bates College: 18 to 1
    Columbia University: 14 to 1
    Yale University: 14 to 1
    University of Pennsylvania: 12 to 1
    Tufts University: 12 to 1
    UCLA: 12 to 1
    UC Berkeley: 12 to 1
    Smith College: 11 to 1

    http://www.discoverthenetworks.org/viewSubCategory.asp?id=217

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  6. smttc (710 comments) says:

    The reality is, Redbaiter, that the socialist haven of Sweden is moderate. Maybe not in your fucked up world view. But certainly by comparison with the rest of the World.

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  7. thedavincimode (6,582 comments) says:

    Russell

    On the one hand you say that Brash should have been PM and we would have been better off, but on the other, you infer he is an idiot or naïve to the machinations of the Marxist progressive hordes. Or is it simply that despite the latter criticism/shortcoming, he would have been remained the superior option to all others.

    Also, now that Colin Craig has emerged as a leading contender, how does that affect your rating of Brash? Or do you think that Craig/Brash might in fact be the dream team: Craig’s leadership and vision, and Brash’s economic expertise?

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  8. Reid (16,074 comments) says:

    This is a simple case of message management by the Gweens. Just after withdrawing from their money-printing debacle which made Wussell them look like a naive and foolish ten-year old with an intellectual handicap, they come out with a somewhat more brainy-looking suggestion about monetary policy governance.

    This is not a serious policy suggestion however, it’s simply about implanting and managing memories, and is all designed to obscure the memory people have of the Gweens money-printing policy come election time, when the voters look back and recall the history of it. And because of this suggestion some people, a few hundred, will not wind up thinking the policy was completely loopy but they will hallucinate there was actually some serious rationale for it. Then they will either switch their vote to the Gweens or they will not switch their vote from the Gweens to Liarbore. That’s the point of it. And that memory hallucination is the illusion this announcement is designed to create, and the timing of it is no accident either, coming in the same news cycle in which the money-printing insanity was withdrawn. They announce the withdrawal at the beginning of the cycle, then this at the peak, and let it coast into the weekend.

    This is an example of how you manage messages, and it’s simple, basic propaganda. And the lefties do it very, very well and they do it all the time. The conservatives hardly ever do it and this is why the lefties have made such inroads into the electorate over the decades. It’s about time the conservatives started doing it and people like Ansell are brilliant at it. But what do the idiot conservatives do? They isolate and ignore him. What a bunch of mentals. No wonder the lefties are winning the popular vote, over time. WTF is wrong with us, you would have to ask, if you have a 3-digit IQ?

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  9. Redbaiter (7,865 comments) says:

    Kevin, Brash has some shortcomings, but would have been far better than the complete progressive Key, who is more suited to be Labour party leader. Is that simple enough for you?

    One thing Brash might have had the sense to do is not hire a bunch of clueless “advisors” sourced from the far left mainstream media.

    Only a complete left wing fuckwit would do this.

    Key should not rest with firing one, but should fire all of them. This might put him closer in touch with real NZ. Why the hell he thinks he needs to listen to a bunch of ivory tower elitist know nothing commies/progressives I am fucked if I know.

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  10. Reid (16,074 comments) says:

    Why the hell he thinks he needs to listen to a bunch of ivory tower elitist know nothing commies/progressives I am fucked if I know.

    Because he wants to be Mr Popular, just like Hulun was, whose career he witnessed in silent admiration. Is my theory.

    I know. Makes you want to puke, don’t it.

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  11. Ross12 (1,235 comments) says:

    This is clearly a case of Norman and co. not understanding what Board governance is all about.
    I agree his proposal opens up all sorts of conflicts of interest possibilities and also direct political influence.
    I would have thought, in practice, at the moment the decision would be made by a group of senior people at the bank even though it is the Governor who fronts the decision. If it is not made by a few “behind the scenes” the Governor would at least canvas views of others in the Bank before he makes the decision.

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  12. Redbaiter (7,865 comments) says:

    “I know. Makes you want to puke, don’t it.”

    Daily.

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  13. BeaB (2,074 comments) says:

    Brash may have had a good brain but he was a nerd with lax morals. Ghastly combination that would have done the country little good.

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  14. UglyTruth (4,550 comments) says:

    Who should set the cash rate?

    Somebody trustworthy.

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  15. UglyTruth (4,550 comments) says:

    Why the hell he thinks he needs to listen to a bunch of ivory tower elitist know nothing commies/progressives I am fucked if I know.

    Because the system’s fiscal security (taxpayers) depends on their underlying philosophy of socialism. I suggest you read up on the history of Fabian socialism if you haven’t done so already.

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  16. hinamanu (2,352 comments) says:

    $10 trillion in new money printed by
    Central Banks in just a few years…

    Everyone is still broke. Where did it go?

    What will the outcome be?

    Video:

    http://www.realecontv.com/page/23634.html

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  17. rangitoto (214 comments) says:

    “Somebody trustworthy.”

    I guess that means John Kirwin, or if you want an elected official then Tim Shadbolt.

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  18. UglyTruth (4,550 comments) says:

    @rangitoto

    What I’m suggesting is that the money supply should be controlled by small regional groups that don’t have any political affiliations. The operating principles of these groups (called hundreds) are the common law principles of truth, reason, and the resolution of disputes.

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  19. PaulL (5,969 comments) says:

    @Simon: the RBNZ takes instructions from the Fed? How’s that tin foil hat working for you?

    @Red: Brash would have been a disaster. No ability to operate retail politics.

    @smttc: Sweden isn’t moderate. Even I can see what Brash is saying, in his understated way. He’s saying “we asked a lefty economist from a crazy left wing country, and they said what we were doing was world best practice.” It’s a message tailored such that the left cannot disagree with it, he doesn’t believe what he’s saying.

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  20. Simon (706 comments) says:

    Is that it PaulL? You got nothing else to offer except your sheeple ignorance. Got nothing on the coordination of central banks and their underlying role in this unfolding disaster.

    Central planning responsible for some much human misery and poverty.

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  21. thaksinsproposal (40 comments) says:

    I would have liked PaulL (5,245) June 21st, 2013 at 11:29 am to have expanded on his opinion in the comment of Brash.
    Also I am intrigued by the notion of memory planting by Reid (13,664) June 21st, 2013 at 9:01 am .
    I agree that Green has moved fast to attempt to delete money printing

    My memory will stay afraid of Green and I will put what little money we family have over to Canada before the next election.
    There is such talk of money printing and devaluation.

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