Uncovering the Hit-list for Small Inflation Targeters: A Bayesian Structural Analysis

Timothy Kim, Kirdan Lees and Philip Liu ()

No DP2006/09, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

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. However, 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. Tests of the posterior distributions of these policy preference parameters suggest that the central banks have very similar objectives.

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: 2006-11
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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)
Journal Article: Uncovering the Hit List for Small Inflation Targeters: A Bayesian Structural Analysis (2009)
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