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Monetary policy and interest rates under inflation targeting in Australia and New Zealand

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  • Hakan Berument
  • Richard T. Froyen

Abstract

One advantage cited for formal inflation targeting is that by anchoring inflationary expectations this policy framework would aid in the pricing of long-term securities. Long-term interest rates would become less sensitive to temporary shocks to the economy including policy-induced changes in short-term interest rates. This paper examines the experience in this regard of New Zealand and Australia, two countries that have been inflation targeters for many years. Our results are consistent with inflationary expectations having become more firmly anchored after the move to inflation targeting in each country. There is no evidence that the credibility of the inflation-targeting regime in either country weakened during the recent world financial crisis.

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  • Hakan Berument & Richard T. Froyen, 2015. "Monetary policy and interest rates under inflation targeting in Australia and New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 49(2), pages 171-188, August.
    • Handle: RePEc:taf:nzecpp:v:49:y:2015:i:2:p:171-188
    DOI: 10.1080/00779954.2014.929608
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    2. Buckle, Robert A., 2018. "Thirty years of inflation targeting in New Zealand: The origins, evolution and influence of a monetary policy innovation," Working Paper Series 20927, Victoria University of Wellington, Chair in Public Finance.
    3. Buckle, Robert A., 2018. "Thirty years of inflation targeting in New Zealand: The origins, evolution and influence of a monetary policy innovation," Working Paper Series 8086, Victoria University of Wellington, Chair in Public Finance.
    4. Vijay Kumar & Sanjeev Acharya & Ly T. H. Ho, 2020. "Does Monetary Policy Influence the Profitability of Banks in New Zealand?," IJFS, MDPI, vol. 8(2), pages 1-17, June.

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