New Zealand was successful in switching from a moderate inflation regime to a low-inflation regime between 1986-92. This success is attributable both to a restrictive monetary policy, political support for the policy, and wide-ranging institutional reforms in the economy--including important...

The 1989 Reserve Bank of New Zealand Act provides a natural experiment in which the effects of institutional change on economic relationships can be studied. The Act set price stability as the single objective of monetary policy and gave the Bank great independence in achieving that goal. We...