Why is the New Zealand government telling its central bank to focus on rising house prices?

Why is the New Zealand government telling its central bank to focus on rising house prices?

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New Zealand’s central bank was one of the world’s first to pursue specific inflation targets in its mission to sustain both low inflation and high employment. But the latest government directive to include housing prices in monetary policy determinations puts the Reserve Bank of New Zealand in unfamiliar and, some experts contend, dangerous territory. In this concise yet accessible commentary, economists Tyler Powell and David Wessel explain the reasons for this expanded responsibility, ways the central bank could accomplish it and concerns about its suitability.


The Reserve Bank of New Zealand (RBNZ) is making a foray into managing asset bubbles.

A steep run-up in housing prices in New Zealand – close to 23% over the course of 2020 – spurred the government to take decisive action. In addition to implementing initiatives to increase the supply of homes, it directed the central bank in February 2021 to take housing prices into account in its decision making on monetary policy. 

The government wants to reduce investor demand in residential housing to head off a potentially speculative bubble and to ensure home affordability...

About the Authors

Tyler Powell is a research analyst at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, where David Wessel is the director.

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