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The long-run effects of monetary policy on output growth

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  • Christie Smith

    (Reserve Bank of New Zealand)

Abstract

This article looks at how interest rates and inflation affect growth in the capital stock, labour supply, and technology, the main determinants of long-run economic growth. Many additional factors affect long-run economic growth, but most of these factors lie outside the sphere of monetary policy. Monetary policy therefore has only a limited capacity to contribute to economic growth over the longer term. However, the evidence does indicate that keeping inflation low and stable makes a positive contribution to long-run economic growth, and that this is the most effective contribution that monetary policy can make to the economy's performance over time. This finding supports the monetary policy framework operational in New Zealand, which is focused on keeping inflation between 1 and 3 per cent on average over the medium term.

Suggested Citation

  • Christie Smith, 2004. "The long-run effects of monetary policy on output growth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, September.
    • Handle: RePEc:nzb:nzbbul:september2004:1
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    References listed on IDEAS

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    Cited by:

    1. Enock Nyorekwa Twinoburyo & Nicholas M Odhiambo, 2018. "Can Monetary Policy drive economic growth? Empirical evidence from Tanzania," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(2), June.
    2. Alan Bollard, 2005. "New Zealand's potential growth rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, March.
    3. Julia Ratcliffe & Ross Kendall, 2019. "Monetary policy strategy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 82, pages 1-25, April.
    4. Aaron Drew & Rishab Sethi, 2007. "The transmission mechanism of New Zealand monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, June.

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