Reserve Bank of New Zealand Bulletin articles

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June 2004 (Vol 67, no 2)

Download the complete issue of the June 2004 Bulletin (PDF 657KB)

Articles

Editor's Note (PDF 54KB)

Interpreting clause 4(b) of the Policy Targets Agreement: avoiding unnecessary instability in output, interest rates and the exchange rate (PDF 244KB)

By Chris Hunt
In clause 2(b) of the Policy Targets Agreement (PTA) between the Minister of Finance and Governor of the Reserve Bank, the target used to direct the Reserve Bank's pursuit of price stability is expressed as "future CPI inflation outcomes between 1 per cent and 3 per cent on average over the medium term." While the Reserve Bank has the independence to choose when and how to adjust policy settings so as to achieve the target, another clause of the PTA provides guidelines as to how this freedom should be used. In clause 4(b) of the PTA, the Minister of Finance and the Governor agree that, in using monetary policy to pursue price stability, the Bank shall take account of the implications of its actions for instability in economic output, interest rates, and the exchange rate.

This article describes how clause 4(b) affects monetary policy decision-making, and reviews the role of clause 4(b) in the current operation of monetary policy.

What drives the New Zealand dollar? (PDF 273KB)

By Anella Munro
This article draws together some of our recent exchange rate research. The research is interpreted against an asset price view of the exchange rate, which has become increasingly relevant as foreign exchange market turnover has become dominated by capital market transactions unrelated to trade in goods and services. Factors that affect expected relative returns on New Zealand dollar assets (eg interest rates, export commodity prices, fixed asset prices and a notion of equilibrium) are found to explain a considerable part of exchange rate cycles, even though they explain only a small part of short-term exchange rate fluctuations. The sources of the relative stability of the Australia-New Zealand bilateral exchange rate and the larger variation of the New Zealand-United States bilateral exchange rate are explored.

Developments in the New Zealand banking industry during 2003 (PDF 175KB)

By Ken Matthews
This article reviews developments in the New Zealand banking industry over the year ended 31 December 2003. It describes structural changes in the industry, comments on current issues in the area of banking supervision in New Zealand, and examines trends in payment methods and distribution channels. The article analyses banking system data from 2003, looking at aggregate financial position, financial performance and risk indicators. The data indicate that the banking system continues to display considerable stability, with good profitability and asset quality. Some comments on developments in the non-bank financial sector and the Australian banking sector are also included. Concluding remarks are made about areas of potential vulnerability for the New Zealand banking system.

This is the final article on the state of the banking system to appear in the Bulletin for the foreseeable future. Commencing later this year, the Reserve Bank plans to publish a regular report, probably six monthly, on the New Zealand financial system. That publication will include analysis of the state of the banking system and related issues. The Bulletin will continue to include articles discussing specific policy developments in the financial system.

Outcomes of the Financial Sector Assessment Programme for New Zealand (PDF 122KB)

By Michael Gordon
This article reviews the main findings from the recent assessment of the New Zealand financial system by the International Monetary Fund, under the Financial Sector Assessment Programme (FSAP). The FSAP assessment concluded that New Zealand's financial system is currently in a strong position and that the banking supervision framework is broadly in line with international standards.

The FSAP report made recommendations in four key areas of banking supervision: on-site supervision, bank failure and distress management, disclosure of information and bank corporate governance. These recommendations are largely addressed by policies currently under development within the Reserve Bank.

Musings on financial stability issues: an interview with Professor George Kaufman (PDF 85KB)

By Geof Mortlock
Professor George Kaufman, the John F Smith Professor of Finance and Economics at Loyola University in Chicago, spent time at the Reserve Bank of New Zealand earlier this year while a Professorial Fellow in Monetary and Financial Economics at Victoria University of Wellington, funded by the Reserve Bank under its visiting academic sponsorship programme. While at the Reserve Bank, Professor Kaufman worked on a range of issues relating to financial stability, focusing in particular on options for dealing with bank distress and failure situations. In that context, the Editor of the Bulletin interviewed Professor Kaufman on a range of financial stability issues.

This interview represents an edited version of the interview held with Professor Kaufman and has been approved by him for publication in the Bulletin. The views expressed in this interview are those of Professor Kaufman and do not necessarily represent the views of the Reserve Bank.

Bank regulation and foreign-owned banks (PDF 118KB)

By George Kaufman
This article is a revised version of the paper presented by Professor George Kaufman in Wellington, New Zealand, on 7 April this year, when he was Professorial Fellow in Monetary and Financial Economics at Victoria University, on a programme sponsored by the Reserve Bank of New Zealand.

APEC policy dialogue on financial disclosure (PDF 85KB)

In February 2004, the APEC Finance Ministers' process held a Policy Dialogue on Financial Disclosure in Kuala Lumpur, Malaysia. The Policy Dialogue was co-chaired by Chile (the Ministry of Finance) and New Zealand (the Reserve Bank of New Zealand) and hosted by Bank Negara Malaysia. Its purpose was to provide a forum for exchanging views on the importance of high quality financial disclosure in the corporate and financial sectors and the means by which such disclosure can be promoted.

This article is a reproduction of the Policy Conclusions paper to be issued under the APEC Finance Ministers' process, summarising the main policy conclusions to emerge from the Policy Dialogue.

Speeches

Speech excerpt on the Reserve Bank's exchange rate intervention proposal (PDF 45KB)

Alternatively, link to the html version of this speech by Adrian Orr.

The views expressed are those of individual authors and do not necessarily reflect official positions of the Reserve Bank of New Zealand. Articles published in this Bulletin may not be wholly or substantially reproduced without the permission of the Reserve Bank of New Zealand. Data, brief extracts from articles, and other material appearing in the Bulletin, may be used without restriction provided due acknowledgement is made of the source.