Finance Minister Grant Robertson is hanging on to a policy to disqualify macroeconomic researchers from being appointed to the Reserve Bank’s (RBNZ) Monetary Policy Committee (MPC).
The seven-member committee is responsible for influencing the cost and supply of money to try to control inflation and employment. The decisions it makes directly affect interest rates and the way the economy operates more broadly.
Robertson in 2019 agreed with the RBNZ board and the Treasury that when appointing members to the committee, a “strict approach” should be taken to managing conflicts of interests.
“This has included excluding from consideration any individuals who are engaged in, or likely to engage in future, in active research on monetary policy or macroeconomics,” the Treasury said in 2019.
“In future appointments to the MPC, looser criteria could be adopted that would allow for a broader field of potential nominees from the Board, if desired.”
However, three years on, Robertson and the RBNZ confirmed the criteria hasn’t been loosened.
The same policy will apply to candidates in the running to replace two of the MPC’s three external members - Bob Buckle and Peter Harris - whose terms expire in April.
There is of course a chance Buckle and/or Harris are reappointed. This might provide continuity in the committee, as two of the four internal members - Geoff Bascand and Yuong Ha - have resigned.
Under the Reserve Bank Act, the finance minister is responsible for appointing MPC members on the recommendation of the RBNZ board. The policy around disqualifying researchers from the job isn’t in the legislation.
‘Baffling’
Motu Research executive director and former RBNZ chief economist and assistant governor, John McDermott, characterised the exclusion of macroeconomic or monetary policy researchers as “baffling”.
“You want people with expertise looking at a technical topic to provide that technical advice and make those decisions based on technical information,” he said.
McDermott, who has a PhD in Economics from Yale University, accepted that not every member of the committee had to have specific research experience, but the exclusion was wrong.
“What you do need to exclude is somebody with conflicts of interest; somebody who might be trading in financial markets,” he said.
“They would carry similar expertise, but they might be able to gain personally from the position - that’s what you want to exclude.”
McDermott said the fact the external committee member roles are parttime is a recipe for conflicts of interest. Similar positions overseas are fulltime and restrict members from doing other work.
“It’s even more of a fulltime job for those who don’t come with the prerequisite of that expertise,” McDermott said.
“The information pours constantly. It doesn’t stop. If you’re going to do it, you need to be all in.”
Craig Renney - Council of Trade Unions chief economist, who worked as an advisor to Robertson when the MPC was created - explained the disqualifier might be there to try to avoid a “firebrand” academic being hired. This could lead market participants to pre-empt monetary policy decisions going one way or another.
However, Renney said having a specific carve out, preventing researchers from being appointed was unnecessary, as the issue could be addressed via the recruitment process.
He believed the most important thing was getting people with the right mix of skills on the MPC.
He didn’t think having macroeconomic researchers on the committee was necessarily essential, as members would be able to draw on this kind of work done by RBNZ staff.
“Economists are as guilty as any other group of consistently believing one thing until the evidence changes,” Renney said.
“Bringing a wider group of people to the table helps to reduce the consequence of that. I don’t personally have a problem with bringing people with different lived or educational experiences on that committee. I actually think it’s helpful, as long as they’re able to make sensible decisions.”
Mixed views by former governors
Back in 2019, former RBNZ governor Alan Bollard told interest.co.nz he wasn’t worried about the policy. He said the appointment criteria could’ve simply been aimed at ensuring those with market interests aren’t hired.
However, his predecessor, Don Brash, characterised the rule as “utterly extraordinary”.
Brash - who favoured monetary policy decisions being left to the governor, not a committee - said: “One would’ve expected the members of the MPC to be experts in monetary policy, or at least macroeconomics more generally. It seems quite extraordinary to exclude people who would have that kind of expertise.”
Existing external MPC members
Here are the bios of the three existing external MPC members, as written on the RBNZ’s website:
Professor Caroline Saunders holds a PhD in Agricultural Economics. She is currently Professor of International Trade and the Environment and Director, Agribusiness and Economics Research Unit, at Lincoln University. Professor Saunders is a Director on the board of Landcare Research NZ, and sits on the Biosecurity Ministerial Advisory Committee. She is a former director of AgriQuality and Council member for the Royal Society of New Zealand. Professor Saunders has been appointed for a four year term from April 2019-2023.
Professor Bob Buckle is Professor Emeritus at Victoria University of Wellington. He was Pro Vice-Chancellor and Dean of the Victoria Business School from 2008 to 2017; Principal Adviser at NZ Treasury from 2000 to 2008, Chair of the Economic Committee of APEC, Chair of the Government’s 2009-10 Tax Working Group, and Chair of the External Panel for Treasury’s Long-Term Fiscal Statement in 2012. He chairs review teams for European Foundation for Management Development (EFMD) and is an ambassador for Victoria Business School’s ‘Great Futures’ scholarships. Professor Buckle has been appointed for a three year term from April 2019-2022.
Peter Harris is an economist with extensive experience in the trade union movement, including a decade as CTU Economist. He is currently an economic consultant. He has been a member of the Electricity Commission and an associate member of the Commerce Commission. He was Economic Advisor to the Minister of Finance from 1999 to 2002. He was a management head of the Public Service Association, and a Board Member of PSIS Ltd and the NZ Universities Academic Audit Board. He led the Government’s Savings Product Working Group in 2004. He is also a member of the Wellington City Council Finance Audit and Risk Committee. Mr Harris has been appointed for a three year term from April 2019-2022.
23 Comments
More property investors with vested interest in the board would be ideal eh!
I see that the Fed is banning members from trading.
It would make sense then that any person making monetary policy decisions in NZ should be excluded from property investments (all wealth should be in a blind trust). How else do we get impartial decisions made?
Central banks are rapidly losing their credibility and the faith of the average citizen. When all trust is gone, their ability control the inflation narrative will be gone - and I don’t think we’re far from that point.
Then again, the sooner society can see through the spin of central bankers, the sooner we can reform this broken system that is driving inequality to a point where financial and social stability are completely broken and irreversible.
Oh yes, for sure.
They have been brilliant in creating rampant inflation, causing the complete mispricing of risk, killing or at least making the bond market close to meaningless by suppressing monetary signals from the free markets, determining a structural and damaging misallocation of capital away from productive activities into parasitic unproductive housing speculation, dangerously increasing inequalities, explosion of debt levels, and the most ridiculously inflated and fragile housing Ponzi in the history of NZ, all which has ultimately caused serious structural problems of financial instability.
Why would you want to change any of that. Anything to sustain the Ponzi for a little longer, eh? We might as well give the responsibility of monetary policy to REINZ and the Property investor Federation.
I find it logical rather than baffling .. seen from this Govt perspective.
Why allow a strong RBNZ with wherewithal to install some discipline ?
Much better to dilute its mandate , let it be distracted with climate change , Maori values and any other pet cause .. have it assist in money printing as we please.
Let's lob the property market loads of cash for free and see what happens... when making that decision you really don't want any experts about to spoil the party..' Sorry Mr Roberston but if you do that in concert with low interest rates, you will end up with rampant inflation and nothing in the tank to fight it with'. Robust debate used to be the basis of sound decision making.
Yes and yet I bet most of the board own multiple properties so have a massive vested interest to drive interest rates to zero and keep them there in order to maximise their own personal wealth…nothing to see here (not!).
Do these board members have to declare their own asset positions before joining as members?
Jenee - it would be interesting to know if these committee members have to declare/make public their own asset positions in order to ensure we have a fair system with impartial committee members making impartial decisions that impact all New Zealanders (both asset and non-asset owners).
As it stands, with inconsistent decisions making based upon CPI data, one really feels that there is a bias towards supporting asset owners over non-asset owners - and without a doubt the committee is full of biased members who likely have significant property and share portfolios.
To assume this position as a committee member all wealth has to be in a blind trust (surely!). How else do you avoid a massive conflict of interest in your decision making for such significant/impactful area such as monetary policy settings?
Anything less than that is completely unjust and leaves the door wide open for corrupt decision making.
One of the main reasons I didn't look to extend the contract I had with a government agency 3 years ago was that I was effectively told what to write by a minister, care of a high level manager at that agency. Screw that!
So much for independent, 'free and frank' expert advice!!!!
The current situation at the RBNZ, is policies and management is the most loose and unintelligent ever. The ones sitting at the top don't have any credibility anymore. They just lost 5bn dollars of Z tax payer money by their decesions and actions. The more losses are to come. It's equivalent to loss of $1000 per adult, child and infant in this country and growing.
Orr decided to reduce the OCR couple of years ago during pandemic and there was no need. The levels are still so low compared to couple of years ago. The need now is to increase due to inflation eating into people's wallets. But they are sitting doing nothing about it.
GR, the incharge of finance is the handler of governer of RBNZ. But we can't expect f.all from these people.
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