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Monetary Policy Rules in Practice: Evidence from New Zealand

Author

Listed:
  • Angela Huang

    (Reserve Bank of New Zealand, New Zealand)

  • Dimitri Margaritis

    (University of Waikato, New Zealand)

  • David Mayes

    (Bank of Finland, Finland)

Abstract

Ten years of inflation targeting in New Zealand is used to test whether monetary policy conforms to the simple rules that have been recommended in the literature. While a Taylor rule with the standard parameters used in the US describes New Zealand monetary policy quite well, the Reserve Bank has focused more strongly on price stability, as required by its Policy Targets Agreements. Monetary policy is better described by targeting the future inflation rate as forecast by the Bank than by current inflation as in the Taylor rule. However, restricting the description of policy to the information available at the time of setting policy does not result in a much-improved explanation. There is a ‘smoothing’ element to the Bank’s policy rather than an immediate response to every small fluctuation. There is also insufficient evidence to suggest that monetary policy has been asymmetric in treating upside inflationary pressures differently from those towards deflation

Suggested Citation

  • Angela Huang & Dimitri Margaritis & David Mayes, 2001. "Monetary Policy Rules in Practice: Evidence from New Zealand," Multinational Finance Journal, Multinational Finance Journal, vol. 5(3), pages 175-200, September.
    • Handle: RePEc:mfj:journl:v:5:y:2001:i:3:p:175-200
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    central banks; inflation-targeting; monetary policy rules;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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