Drinkwater on monetary policy

Just as Scrubone has become the dedicated fisker of No Right Turn, B K Drinkwater has appointed himself as the fisker for Marty G at . His latest response to the suggestion that should target inflation, unemployment and the exchange rate is:

Genius! What the RBNZ should do is this: pick a point on the Philips Curve and manage New Zealand’s economy towards it! If only some genius thought of this before.

Oh, wait. Someone did, and it didn’t work. Apparently, some guy called Friedman accurately predicted its failure …

Stagflation in the 70s proved Friedman correct, but this is where Phil Goff wants us to go back to.

I actually can’t figure out whether Marty wants the interest rates to be low or high. He thinks that if they’re too high, then the currency carry trade will create a “flood of credit”, making mortgage rates too low. His preferred solution—abandoning inflation-targeting—clearly implies that he wants the OCR lower than it is, and that by doing this, somehow mortgage rates will go up.

He’s very confused.

And then Blaise sums up:

So Marty wants the following:

  • A lower OCR
  • Higher mortgage rates
  • Jobs, or in other words, investment in New Zealand
  • Reduction in the currency carry trade, a big chunk of such investment

My head hurts.

Need more be said.

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