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Price Effects of Monetary Policy: The Case of a Small Open Economy of New Zealand

Author

Listed:
  • Shahnawaz Karim

    (National Center for Financial and Economic Information (NCFEI), Ministry of Finance, Riyadh-11177, Kingdom of Saudi Arabia)

  • Minsoo Lee

    (Economics and Research Department, Asian Development Bank, Postal: P.O. Box 789, Manila)

  • Christopher Gan

    (Commerce Division, PO Box 84, Lincoln University, Lincoln 7647, Canterbury, New Zealand)

Abstract

This paper empirically examines the price effects of monetary policy shocks in New Zealand. Empirical analysis incorporates variables suggested by a hybrid New Open Economy Macroeconomic (NOEM) model, allowing both ‘producer and local currency pricing to market (PCP and LCP-PTM)’ activities of foreign exporters. Empirical findings indicate the absence of any price puzzle and show that New Zealand producer price index (PPI) responds more sluggishly than consumer price index (CPI) due to a restrictive domestic monetary stance; suggesting the differences between the exchange rate pass-through of monetary policy shocks to CPI and PPI resulting from exporters’ different pricing strategies.

Suggested Citation

  • Shahnawaz Karim & Minsoo Lee & Christopher Gan, 2011. "Price Effects of Monetary Policy: The Case of a Small Open Economy of New Zealand," Economic Analysis and Policy, Elsevier, vol. 41(3), pages 253-272, December.
    • Handle: RePEc:eee:ecanpo:v:41:y:2011:i:3:p:253-272
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    More about this item

    Keywords

    New Open Economy Macroeconomic model; Monetary transmission mechanism; Inflation targeting monetary policy; Exchange rate pass-through;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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