Alternative Rules for Monetary Policy and Fiscal Policy in New Zealand: A Priminary Assessment of Stabilization Properties.

In this paper, I focus on the stabilization properties of alternative simplified approaches to the conduct of monetary policy and fiscal policy. The paper is motivated by questions of topical interest in New Zealand, for example what the costs might be in terms of lost credibility if the Reserve Bank of New Zealand were to have multiple goals rather than the exclusive goal of price stability, and whether output smoothing might significantly reduce the costs of the economy adjusting to shocks without compromising the long-run goals of a low rate of inflation and sustainable, prudent long-run evolution in the government's budget. The paper uses an illustrative model of a small open economy with features like New Zealand's, developed while the author was visiting New Zealand in the spring of 1966.