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The transition period before the inflation targeting policy

Author

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  • Essahbi Essaadi

    () (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)

  • Zied Ftiti

    () (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)

Abstract

In this paper, we study the inflation dynamics in an industrial inflation-targeting country (New Zealand). Our objective is to check if the inflation targeting policy has a transition period or not. Loosely speaking, we try to give some response to the famous debate: if the inflation targeting is a framework or a simple monetary rule. For this purpose, we use a frequency approach: Evolutionary Spectral Analysis, as defined by Priestley (1965-1996). Then, we detect endogenously a structural break point in inflation series, by applying a non-parametric test. This is the first time that this method is used in the case of inflation-targeting countries. Our main finding is that the adoption of the inflation-targeting policy in New Zealand was characterized by a transition period before the adoption of this framework. This period was characterized by many radical reforms, which caused a structural break in the New Zealand inflation series. These reforms were made to lead back the inflation close to the initial target. In addition, these reforms increased the transparency and the credibility of the monetary policy. We conclude from our frequency analysis that the inflation series becomes stable in long-term after the adoption of the inflation targeting. This can be a justification of the effectiveness of this policy to ensure the price stability.

Suggested Citation

  • Essahbi Essaadi & Zied Ftiti, 2008. "The transition period before the inflation targeting policy," Working Papers 0830, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:0830
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    Cited by:

    1. Ftiti, Zied & Hichri, Walid, 2014. "The price stability under inflation targeting regime: An analysis with a new intermediate approach," Economic Modelling, Elsevier, vol. 38(C), pages 23-32.
    2. Zied Ftiti & Aviral Tiwari & Amél Belanès & Khaled Guesmi, 2015. "Tests of Financial Market Contagion: Evolutionary Cospectral Analysis Versus Wavelet Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 46(4), pages 575-611, December.
    3. Zied Ftiti & Khaled Guesmi & Nguyen & Frédéric Teulon, 2015. "Modelling inflation shifts and persistence in Tunisia: perspectives from an evolutionary spectral approach," Applied Economics, Taylor & Francis Journals, vol. 47(57), pages 6200-6210, December.
    4. repec:ipg:wpaper:2014-099 is not listed on IDEAS

    More about this item

    Keywords

    New Zealand; Inflation Targeting; Spectral Analysis and Structural Change;

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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