Although they have different objectives, our macroprudential policies were complementary to monetary policy when first introduced; the LVR restrictions were acting to reduce growth in house prices at a time when the Bank expected inflationary pressures to build (see Williams, 2017a). But as the outlook for inflation weakened, the policies began to have opposing implications for the business cycle.
The PTA is clear that monetary policy must have regard to financial stability but it does not – and probably cannot – specify exactly what trade-offs should be entertained. The optimal balance between price and financial stability remains an area of ongoing research in New Zealand and abroad.