High and rapidly rising levels of household debt can be risky. A high level of debt increases the sensitivity of households to any shock to their income or balance sheet. And during periods of financial stress, highly indebted households tend to cut their spending more than their less- indebted...

This article describes New Zealand’s capital markets, and the role they play in the functioning of financial markets and the real economy. It describes the instruments and players involved, and analyses a unique dataset to provide some detail on the size of both the bond and equity markets,...

Commercial property lending has been the main reason for defaults during most financial crises, bothinternationally and in New Zealand. With the commercial property market recovering strongly, this article reviews the structure of the New Zealand market and its relationship to financial...

Economic developments in the rest of the world affect New Zealand consumer prices. This article traces the channels through which the consumers price index (CPI) is affected by the exchange rate. Changes in the exchange rate that result from changes in the prices of commodities New Zealand...

Monetary policy decisions are typically made by independent central banks. But the details of the monetary policy decision-making and accountability structures differ widely across countries. This article outlines the key features of monetary policy governance and accountability arrangements of...

The Reserve Bank recently announced restrictions on high loan-to-value ratio (LVR) lending. The restrictions take the form of a ‘speed limit’ that requires banks to restrict new residential mortgage lending at LVRs of over 80 percent to no more than 10 percent of the dollar value of their...

This article provides an update on the Kauri bond market. It identifies the major participants in the Kauri market, describes the factors which drive the supply of and demand for Kauri bonds, and looks at reasons for the strong Kauri issuance during 2013. Factors supporting increased issuance...

The Reserve Bank has recently developed a macro-prudential policy toolkit. This article considers how macro-prudential policy could interact with the Reserve Bank’s monetary policy function. While these policies are set with the differing objectives of financial and price stability,...

The terms of trade are a key influence on New Zealand’s economy, and have often been quite volatile. This article compares New Zealand’s experience with those of a group of other advanced economies. Cycles in New Zealand’s terms of trade have been relatively large, but similar to those in...

Most central banks in advanced economies use published inflation targets to guide the day-to -day conduct of monetary policy. This article reviews the quite considerable differences in how various countries, which use quite similar operational targets, articulate what they expect from a central...