Optimal revenue smoothing: The case of New Zealand

This paper examines the theory of optimal revenue generation for New Zealan d over a 60-year period. We show that the theory garners considerable empir ical support during the period up to 1989 when the Reserve Bank became inde pendent. In the wake of the enactment of the Reserve Bank Act of 1989, however, the long-run relationship between the rate of inflation and the tau rate ceases . The sudden break in the long run relationship between the two time series is attributable to the demise of the omnipotent policymaker.