WELLINGTON - A Swedish professor who has already expressed strong support for the Reserve Bank's conduct has been chosen by Finance Minister Michael Cullen to carry out the Government's inquiry into the operation of monetary policy.
Dr Cullen said yesterday that Lars Svensson, who chairs the Nobel Prize monetary and economicsselection committee, is an adviser to Sveriges Riksbank (the Bank of Sweden) and one of the world's leading authorities on monetary policy and monetary economics.
Dr Cullen had previously said the Government would conduct a strictly limited review of the bank's operation of monetary policy as promised before the election.
The bank's independence and its goal of maintaining price stability as a primary function have been fenced off from the review.
Dr Cullen said the purpose of the review was to investigate ways of enhancing the bank's ability to operate monetary policy "without unnecessary volatility to the economy, employment, interest rates and the exchange rate."
But anyone hoping that Professor Svensson's review will result in a more relaxed approach to the application of monetary policy is likely to be sorely disappointed.
Professor Svensson came to Victoria University in 1997 as a visiting fellow in monetary economics.
He expressed the view then that the Reserve Bank's inflation target was flexible and the bank had taken a gradualist approach that avoided pushing exchange rates and interest rates around.
At that time, when the Government widened its inflation target to 0 to 3 per cent from 0 to 2 per cent, he said there was also no good reason to raise the mid-point of the bank's target band from 1 per cent to 1.5 per cent.
He said there was no evidence that a higher inflation target brought a better economic performance.
There was only evidence that considerably higher inflation harmed long-run growth.-NZPA
