UNCOVERING THE HIT-LIST FOR SMALL INFLATION TARGETERS: A BAYESIAN STRUCTURAL ANALYSIS

Timothy Kam (), Kirdan Lees and Philip Liu ()

ANUCBE School of Economics Working Papers from Australian National University, College of Business and Economics, School of Economics

Abstract: We estimate underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters - Australia, Canada and New Zealand - within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. We find that none of the central banks show a concern for stabilizing the real exchange rate. All three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. The Reserve Bank of Australia places the most weight on minimizing the deviation of output from trend. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective.

JEL-codes: C51 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2006-09
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Related works:
Working Paper: UNCOVERING THE HIT-LIST FOR SMALL INFLATION TARGETERS: A BAYESIAN STRUCTURAL ANALYSIS (2006)
Working Paper: Uncovering the Hit-list for Small Inflation Targeters: A Bayesian Structural Analysis (2006)
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