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Monetary Policy In A Virtual Economy

The Reserve Bank today launched a web-based computer simulation game whereby the player fights inflation by controlling the interest rate in a virtual economy.

The game, aimed at senior high school economics students, has been developed as an educational resource designed to encourage understanding of monetary policy.

Access to the game, including instructions on how to play, is in the Education section on the Reserve Bank's website at www.rbnz.govt.nz.

The game works as a screen with four separate graphs: inflation, real output growth, real interest rates and nominal interest rates. The player's goal is to adjust interest rates so that inflation is within the 0 to 3 per cent band, causing a smiley face to appear. The face frowns when inflation goes out of the 0 to 3 per cent band. The virtual economy experiences shocks, causing a change in the inflation rate, to which the player must react by adjusting interest rates. To enhance the challenge further, the player can load a recession or boom, or several other scenarios into the virtual economy.

Reserve Bank Governor Don Brash commented, "I expect the game will be a useful resource for teachers and students. I particularly like the unpredictable nature of the game's virtual economy. In that respect, it's similar to the challenges I face in the real world."

The Reserve Bank of New Zealand's Monetary Policy Simulation game is an adaptation of a similar game available on the Swiss National Bank website.

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