And it matters how the central bank drafts its communications – research has shown that relatively simple, but targeted messages, are particularly effective in shaping consumers’ inflation expectations.9 So it is important to increase awareness about the central bank mandate and to enhance trust in the central bank.
To sum up this point, the fall in the exchange rate has the potential to produce quite a major change in the structure of the New Zealand economy, to the point where we may see a significant reduction in the size of current account deficits.