Central Banks & Decision-Making
8 important questions on Central Banks & Decision-Making
What are the primary roles of central banks?
- Control inflation
- Issue currency
- Regulate banks
- Intervene during crises
What is the RBNZ’s mandate regarding price stability?
- Keeping inflation between 1–3%
- Aiming for an inflation target of 2%
- The job market mandate was removed in 2023
Why is independence important for central banks?
- Make decisions free from daily political influence
- Build trust and credibility among the public
- Enhance the effectiveness of monetary policy
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How does governance influence decision-making in central banks?
- The Monetary Policy Committee (MPC) composition
- A mix of insiders and outsiders
- Formal voting rules affect cautiousness or boldness
What key data influences monetary policy?
- Inflation
- Employment
- GDP
- Credit growth
- Exchange rates
How does inflation have various dimensions?
- Core vs. headline inflation
- Tradables vs. non-tradables
- Inflation expectations impact decision-making differently
What nuances exist in employment data?
- Unemployment rate
- Underutilisation
- Labour force participation
- Wage growth shows hidden market slack
What is the bottom line regarding central banks like the RBNZ?
- Utilizing laws and committees
- Analyzing data on inflation and jobs
- Recognizing the importance of independence and credibility in shaping public expectations
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