Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand

Saten Kumar, Hassan Afrouzi, Olivier Coibion and Yuriy Gorodnichenko

No 21814, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the (lack of) anchoring of inflation expectations in New Zealand using a new survey of firms. Managers of these firms display little anchoring of inflation expectations, despite twenty-five years of inflation targeting by the Reserve Bank of New Zealand, a fact which we document along a number of dimensions. Managers are unaware of the identities of central bankers as well as central banks’ objectives, and are generally poorly informed about recent inflation dynamics. Their forecasts of future inflation reflect high levels of uncertainty and are extremely dispersed as well as volatile at both short and long-run horizons. Similar results can be found in the U.S. using currently available surveys as shown in Binder (2015).

JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (229)

Published as Saten Kumar & Hassan Afrouzi & Olivier Coibion & Yuriy Gorodnichenko, 2015. "Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand," Brookings Papers on Economic Activity, vol 2015(2), pages 151-225.

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