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Lessons from Inflation Targeting in New Zealand

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Author Info
Aaron Drew

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Abstract

This paper uses the Reserve Bank of New Zealand’s model to combine a macroeconomic evaluation of the performance inflation targeting with an analysis of policy rules. The questions to answer are two: (i) what lessons can be obtained from the shocks that have been experienced and the response given to them?, and, (ii) which is the optimal response to different types of shock?. The model allows to treat some issues of interest for the implementation of this scheme, like the flexibility of the inflation target (which depends on the degree of credibility of the monetary authority), the optimal policy horizon (a intermediate horizon seems to achieve the best combination of inflation volatility and output) and the bandwidth (which implies a trade off between output volatility and inflation).

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File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc113.pdf
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Publisher Info
Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 113.

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Date of creation: Nov 2001
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Handle: RePEc:chb:bcchwp:113

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Aaron Drew & Adrian Orr, 1999. "The Reserve Bank's role in the recent business cycle: actions and evolutions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March. [Downloadable!]
  2. Bruce White, 1998. "Monetary policy and the structure of the capital account: the New Zealand experience," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, December. [Downloadable!]
  3. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: preparing economic projections," Reserve Bank of New Zealand Discussion Paper Series G98/7, Reserve Bank of New Zealand. [Downloadable!]
  4. P.A. Tinsley, 1993. "Fitting both data and theories: polynomial adjustment costs and error- correction decision rules," Finance and Economics Discussion Series 93-21, Board of Governors of the Federal Reserve System (U.S.).
  5. Nicoletta Batini & Andrew G Haldane, . "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England. [Downloadable!]
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  6. Ben Hunt, 1999. "Inter-forecast monetary policy implementation: fixed-instrument versus MCI-based strategies," Reserve Bank of New Zealand Discussion Paper Series G99/1, Reserve Bank of New Zealand. [Downloadable!]
  7. Lars E O Svensson, 1997. "Inflation targeting in an open economy: strict or flexible inflation targeting?," Reserve Bank of New Zealand Discussion Paper Series G97/8, Reserve Bank of New Zealand. [Downloadable!]
  8. John B. Taylor, 1994. "The inflation/output variability trade-off revisited," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 21-24. [Downloadable!]
  9. Gordon G. Thiessen, 1998. "The Canadian Experience with Targets for Inflation Control," Canadian Public Policy, University of Toronto Press, vol. 24(4), pages 415-428, December. [Downloadable!] (restricted)
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