Behind the scenes of a policy decision and communication

The Reserve Bank of New Zealand published an article providing a behind-the-scenes look at how the central bank reaches a policy decision and communicates it via a Monetary Policy Statement.

A useful, detailed explanation of the state-of-the-art monetary policy decision-making process at a leading inflation-targeting central bank.

A clear consensus on how a central bank should make decisions ... is yet to emerge amongst academic economists, but inflation-targeting central banks have adopted some common features in their decision making.

These common features include policy discussion within a committee, considering of a wide set of information, a focus on transparency and clear communication to stakeholders, and generally modest moves in policy settings that are regularly reviewed.

On the purpose of designing robust decision-making arrangements, the RBNZ - in an apparent move to regain confidence after an embarrassing, reputation-hurting news leak in March - said:

The Bank’s monetary policy decision-making process is designed to: reduce uncertainty as much as possible; characterise the uncertainty that remains; help decision makers understand and balance the consequent risks; communicate the decision, underlying judgements and risks externally; and ensure that the Bank’s policy stance and judgements are constantly reviewed in the face of new developments.