Inflation Targeting and Economic Reforms in New Zealand
Matteo Cacciatore (),
Fabio Ghironi () and
Stephen J Turnovsky ()
International Journal of Central Banking, 2015, vol. 11, issue 4, 145-198
We study the consequences of economic reforms in New Zealand since the beginning of the 1990s. Inflation targeting became the monetary policymaking framework of the RBNZ in 1990. In the years that followed, New Zealand implemented labor market reform and became increasingly integrated in world trade. We use a New Keynesian model with rich trade microfoundations and labor market dynamics to study the performance of inflation targeting versus alternative monetary policy rules for New Zealand in relation to these market characteristics and reforms. We show that nominal income targeting would have been a better choice than inflation targeting or price-level targeting prior to market reforms by delivering more stable unemployment dynamics in a distorted economic environment. Nominal income targeting would also have been better than inflation targeting with respect to the transition costs of labor market reforms, though inflation targeting allowed for better management of the transition after trade integration. With New Zealand in its new long-run environment of integrated trade and flexible labor markets, the welfare gap between nominal income targeting and price/inflation targeting declines, as market reforms lower unemployment volatility.
JEL-codes: E24 E32 E52 F16 F41 J64 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2015:q:4:a:4
Access Statistics for this article
International Journal of Central Banking is currently edited by Loretta J. Mester
More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().