Improving implementation of inflation targeting in New Zealand: an investigation of the Reserve Bank's inflation errors
I investigate New Zealand's rate of inflation and its deviations from target using two new methods: 1) Rowe's (2002) new way of examining the correlations between inflation deviations from target and indicators. Any significant correlations, whether in a simple or multivariate framework, are interpreted as evidence against optimal policy setting. 2) Cukierman and Gerlach (2003) and Ruge-Murcia's (2001) new inflation bias hypothesis. As a counterpoint to Kydland and Prescott's (1977) and Barro and Gordon's (1983) time inconsistency explanation of inflation bias, Ruge-Murcia, Cukierman and Gerlach take the different view that even if central banks target the natural rate of unemployment or the potential level of output, some inflation bias might still exist if their loss function is asymmetric. I examine the inflation errors from 1982 to 2003 to investigate how information contained in these might be used to improve future inflation targeting in New Zealand.
|Date of creation:||Jul 2004|
|Contact details of provider:|| Postal: P.O. Box 2498, Wellington|
Phone: 64 4 471-3767
Fax: 64 4 471-2270
Web page: http://www.rbnz.govt.nz
More information through EDIRC
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.:
- Cukierman, Alex & Gerlach, Stefan, 2003.
"The Inflation Bias Revisited: Theory and Some International Evidence,"
CEPR Discussion Papers
3761, C.E.P.R. Discussion Papers.
- Alex Cukierman & Stefan Gerlach, 2003. "The inflation bias revisited: theory and some international evidence," Manchester School, University of Manchester, vol. 71(5), pages 541-565, 09.
- Nicholas Rowe, 2002. "How to Improve Inflation Targeting at the Bank of Canada," Staff Working Papers 02-23, Bank of Canada.
- Robert J. Barro & David B. Gordon, 1981.
"A Positive Theory of Monetary Policy in a Natural-Rate Model,"
NBER Working Papers
0807, National Bureau of Economic Research, Inc.
- Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
- Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, March.
- Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
- Alex Cukierman & Anton Muscatelli, 2001. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability?," Working Papers 2002_4, Business School - Economics, University of Glasgow, revised Mar 2002.
- McCallum, Bennett T, 1995.
"Two Fallacies Concerning Central-Bank Independence,"
American Economic Review,
American Economic Association, vol. 85(2), pages 207-11, May.
- Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
- Peston, Maurice H, 1972. "The Correlation between Targets and Instruments," Economica, London School of Economics and Political Science, vol. 39(156), pages 427-31, November.
- Sharon McCaw & Satish Ranchhod, 2002. "The Reserve Bank's forecasting performance," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, December.
- Paul Mylonas & Sebastian Schich, 1999. "The Use of Financial Market Indicators by Monetary Authorities," OECD Economics Department Working Papers 223, OECD Publishing.
- Lars E O Svensson, 7/11. "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.
- P. Dorian Owen, 2003. "General-to-Specific Modelling Using PcGets," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 609-628, 09.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
- W A Razzak, 1/07. "Money in the era of inflation targeting," Reserve Bank of New Zealand Discussion Paper Series DP2001/02, Reserve Bank of New Zealand.
- Özer Karagedikli & Kirdan Lees, 4/04. "Do inflation targeting central banks behave asymmetrically? Evidence from Australia and New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP 2004/02, Reserve Bank of New Zealand.
When requesting a correction, please mention this item's handle: RePEc:nzb:nzbdps:2004/06. 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 references are entirely missing, you can add them using this form.