• rmacculloch

A secret about the Reserve Bank's "consultation" on its inflation-employment objectives

This week the RBNZ began its "five yearly review" about its (inflation-employment) remit, saying that it “is seeking feedback to ensure that the Remit framework is the best it can be for our legislative purpose, and ultimately the .. wellbeing of all New Zealanders".

The NZ Herald reported the announcement as follows: "The RBNZ is considering whether it needs to be given more guidance on how it balances meeting its inflation & employment objectives". Well let me let you in on a little secret. It is not sincere about wanting to receive "feedback". How do I know? The story goes as follows.

The Bank's ultimate aim is to achieve high "well-being" by influencing inflation & unemployment using its policy lever of the Official Cash Rate. Now I have no special interest in advertising my research, though it turns out that the seminal article written on this topic is called "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness" in the American Economic Review in 2001. It was written by me.

The paper is about how nations can operate monetary policy to maximize well-being - it was part of the reason why the RBNZ was given such a remit by the government in the first place.

The point is that ever since the Reserve Bank (Monetary Policy) Amendment Act 2018 was passed (whose purpose was that monetary policy should be oriented to promoting well-being) the Bank has not shown one molecule of interest in that article, in ever asking me about it, in ever asking me to present there, in ever asking me to discuss the latest scientific evidence that exists regards how to achieve their core objective.

Although the RBNZ couldn't have cared less, in spite of constantly carrying on about "well-being" in its press releases, you may legitimately ask: did such rampant disinterest also apply to other Central Banks? No. At least not in the case of Ben Bernanke, the former US Federal Reserve Chair:

(see footnote 3) not to mention the current US Treasury Secretary (& former US Fed Reserve Chair) Janet Yellen, not to mention the Chair of Pres. Bush's Council of Economic advisers:

(see the chapter by Janet Yellen called "Implications of Behavioral Economics for Monetary Policy"). Yes, Yellen and Bernanke showed great interest in the article. As for their Kiwi counterparts, Robertson and Orr, no interest at all, even though, unlike the US Fed, the RBNZ has an explicit "well-being" objective, which is what the paper is about!

So from my perspective, this RBNZ consultation is a Comms and PR sham - it is utterly insincere. The Bank is only pretending to be interested in other's views. Those of us who have actually published articles on how they should do their job properly & studied the subject in detail - we know that this post-2018 RBNZ has closed its mind and won't entertain other perspectives, despite the pretense otherwise.

Of course, the Bank's huge Comms & PR team will no doubt shortly get to work to neutralize this blog.