New Zealand was one of the first countries to secure the independence of the central bank in law, where it defined the Reserve Bank of New Zealand's sole priority: price stability.

Reserve Bank and its chief, Donald Brash, were held in such high esteem that in September 1998 the previous governor of the Bank of Israel invited Brash to visit Israel and describe New Zealand's experience.

But Brash's own government was less impressed after he persisted with his his heavy-handed monetary campaign after inflation had been curbed, compromising the real economy.

Comparing itself with Australia, which managed to maintain reasonable price stability with more rapid growth, the government of New Zealand forced Brash to redefine the bank's goals: "In pursuing its price stability objective, the bank shall implement monetary policy in a sustainable, consistent and transparent manner and shall seek to avoid unnecessary instability in output, interest rates and the exchange rate."

TheStreet Recommends

Yet New Zealand continued to lag behind Australia, maybe because the new policy was not implemented consistently enough. New Zealand's economy grew by less than 2% in 2001. The forecast for this year is a hair over 3%, while Australia expects 4-plus percent growth.

Some people believe the high interest rates Brash sustained in order to keep inflation within a range of 0% to 3% kept inflation down and growth too. Whatever the case, Brash's disagreements with his colleagues led him to quit the government and join the conservative opposition party.

Labor won the last round of elections too and appointed a new governor, Allan Bollard. Bollard is expected to loosen the bank's monetary grip and close the growth gap with Australia.

There are differences between Israel's economy and New Zealand's, but the comparisons may prove beneficial. With a short hiatus at the end of 2001, the Bank of Israel has been sustaining very high interest. In real terms, interest has gone up for four consecutive months, stifling households and hindering growth. Maybe it is time for our brash governor to reach conclusions?