Why and how did New Zealand change its central bank in the 1980’s?
Labels: Exam 2 Question 12
posted by Eschenfelder at 10:14 AM
Money and Banking Spring 2006
The following posts are the questions which appeared on last semester's exams. Students should use the comment sections to answer the questions and respond to the posts of other students.
Thursday, February 22, 2007
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2 Comments:
Throughout the 1970s, New Zealand was experiencing high inflation and a sluggish economy. This was caused primarily because of the low political independence of New Zealand’s central bank. Politicians had too much say in the central bank’s operation, and thus refused to take inflation combating measures because they would be damaging politically. This led to a crisis situation in the 1980s and the eventual creation of a more politically independent central bank in 1989 called the Bank of New Zealand.
In the 1970s, New Zealand was experiencing high inflation and a sluggish economy (stagflation). This was primarily because of the lack of political independence held by the central bank. Politicians refused to take action in order to lower inflation because the result would be unfavorable for them politically. This lead to the crisis of the New Zealand economy in the 80’s, when they decided to focus on price stability and eventually created the Bank of New Zealand which was significantly more politically independent.
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