WELLINGTON, New Zealand ¨C More than 30 years ago, some relatively youthful central bank and Treasury economists in New Zealand were grappling with how to bring two decades of double-digit inflation under control in an economy less than 1% the size of its U.S. counterpart.
What if, they asked, they just told everyone the rate should be much lower ¡ª say roughly 2% ¡ª and then aim for that?
¡°It was a bit of a shock to everyone, I think,¡± said Roger Douglas, the Labour Party finance minister at the time who worked with the Treasury and Reserve Bank of New Zealand (RBNZ) to pioneer the policy. ¡°I just announced it was gonna be 2%, and it sort of stuck.¡±
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