Modelling New Zealand inflation in a Phillips curve
This article presents some simple estimates of Phillips curves for New Zealand inflation and outlines a recent reorganisation of the inflation process in the Reserve Bank's Forecasting and Policy System (FPS). While modern economic theory suggests the traditional Phillips curve should be used only with care, empirical estimates for New Zealand suggest it continues to have some value. We find that estimates of the impact of resource pressure (the "output gap") on inflation are easiest to obtain from an equation on the non-tradables component of CPI inflation, and show that this relationship can be improved statistically by introducing a (fairly smooth) measure of inflation expectations on the right hand side. We present some evidence that the relationship between resource pressures and non-tradables inflation is stronger in New Zealand than some comparable countries, and further evidence that this could be related to the cyclicality of housing construction costs in New Zealand. In the latest version of the Reserve Bank's macro-model, FPS, the inflation process has been written with a tradables/non-tradables split and an explicit empirical measure of inflation expectations. This does not greatly change model properties but allows the model's congruence with the data to be assessed more directly.
Volume (Year): 69 (2006)
Issue (Month): (September)
|Contact details of provider:|| Postal: |
Phone: 64 4 471-3767
Fax: 64 4 471-2270
Web page: http://www.rbnz.govt.nz
More information through EDIRC
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.:
- David Laidler, 2001. "Phillips in Retrospect," UWO Department of Economics Working Papers 20013, University of Western Ontario, Department of Economics.
- James Twaddle & Florin Citu, 2003. "The output gap and its role in monetary policy decision-making," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 66, March.
- Paul Conway & Ben Hunt, 1997. "Estimating potential output: a semi-structural approach," Reserve Bank of New Zealand Discussion Paper Series G97/9, Reserve Bank of New Zealand.
- Michael Graff, 2004. "Estimates of the output gap in real time: how well have we been doing?," Reserve Bank of New Zealand Discussion Paper Series DP 2004/04, Reserve Bank of New Zealand.
- Tim Hampton, 2001. "How much do import price shocks matter for consumer prices?," Reserve Bank of New Zealand Discussion Paper Series DP2001/06, Reserve Bank of New Zealand.
- Bernard Hodgetts, 2006. "Changes in the inflation process in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, pages 30p., March.
When requesting a correction, please mention this item's handle: RePEc:nzb:nzbbul:september2006:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reserve Bank of New Zealand Knowledge Centre)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.