This essay reviews the Australian and New Zealand experiences with monetary and exchange rate policies over the period 1973 to 1991. By way of background, the essay begins by presenting some basic facts about the two economies.

Section 2 deals with the regulatory environment, and the evolution in that environment, in the two economies. This is addressed under several broad headings:

1. Domestic financial regulation

2. Controls over capital movements

3. The exchange rate regime

4. The regulation of labor markets

5. The status of the central banks

Section 3 reviews the key theoretical issues that bear on the design of monetary and exchange rate policies. The ground covered includes:

1. The choice of exchange rate regime

2. The design of monetary policy

3. The impacts of domestic financial deregulation

Section 4 addresses the question of how two similar countries like Australia and New Zealand go about choosing the exchange rate regime that best suits their characteristics. Section 5 looks at evidence, for Australia, of the impacts of domestic financial deregulation. Sections 6–8 review in more detail the evolution of monetary and exchange rate policies in Australia and New Zealand.

Section 9 takes as a starting point the fact that the two economies, at about the same time, floated, deregulated their domestic financial system, and abandoned all exchange controls, and then asks how these developments might have affected the capacity of the economy to absorb shocks.