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Monetary and Fiscal Policy: How an Agreed Inflation Target Affects Fiscal Policy


Donald Brash, 184 Symonds Street, Auckland 1010, New Zealand. Email:


When the 1989 legislation was passed giving the Reserve Bank of New Zealand a high degree of operational independence, with an overriding responsibility for achieving and maintaining stability in the general level of prices, the extent to which this would inevitably drive change in fiscal policy was not widely understood. It wasn’t long before the Government realised the inevitable inter-relationship.