Geoff Simmons and Bernard Hickey review how interest rate targeting works and the options to change the current settings

By Geoff Simmons*

New Zealand started the practice of targeting the interest rate as a way to tame inflation and provide an economy with a sound basis to grow.

But with growth in many countries stuck below pre-GFC levels, policy makers are questioning whether this is still the right approach.

Bernard Hickey reviews the history and how well that worked.

He also assesses how this now-standard approach is working now for both New Zealand, and the other major economies that are using it.

And he lists the alternatives and adjustments that could be adopted to respond to the new current realities of a low or no inflation environment.

Geoff Simmons is an economist working at the Morgan Foundation. This article is here with permission and first appeared here.