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Macroeconomic Effects of Inflation Targeting Policy in New Zealand

Author

Listed:
  • Kyongwook Choi

    (Department of Economics, Ohio University)

  • William Shambora

    (Department of Economics, Ohio University)

  • Chulho Jung

    (Department of Economics, Ohio University)

Abstract

In this paper we analyze macroeconomic effects of inflation targeting policy in New Zealand using Markov switching model with one time permanent break. Our results show that the inflation targeting policy has significantly changed the inflation dynamics in the New Zealand economy. The Markov switching model clearly detects a structural break date that is very close to the actual date of the policy change. The volatility in the inflation rate shows a considerable reduction after the structural break date. Our results also show that the inflation targeting policy led to a structural change in real GDP growth rate. The policy change significantly reduced the volatility of real GDP growth rate after the break date. We find that there is a lag of about one year and six months between the monetary policy change and its actual effect on output growth.

Suggested Citation

  • Kyongwook Choi & William Shambora & Chulho Jung, 2003. "Macroeconomic Effects of Inflation Targeting Policy in New Zealand," Economics Bulletin, AccessEcon, vol. 5(17), pages 1-6.
    • Handle: RePEc:ebl:ecbull:eb-03e50003
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    File URL: http://www.accessecon.com/pubs/EB/2003/Volume5/EB-03E50003A.pdf
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    References listed on IDEAS

    as
    1. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, April.
    2. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    3. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ftiti, Zied & Hichri, Walid, 2014. "The price stability under inflation targeting regime: An analysis with a new intermediate approach," Economic Modelling, Elsevier, vol. 38(C), pages 23-32.
    2. Oscar Díaz Q. & Marco Laguna V., 2007. "Factores que explican la reducción de las tasas pasivas de interés en el sistema bancario boliviano," Monetaria, CEMLA, vol. 0(4), pages 331-366, octubre-d.
    3. Goran Petrevski, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," Papers 2305.17474, arXiv.org.
    4. Alejandro Gaytán & Jesús González-García, 2007. "Cambios estructurales en el mecanismo de transmisión de la política monetaria en México: un enfoque VAR no lineal," Monetaria, CEMLA, vol. 0(4), pages 367-404, octubre-d.
    5. Wesselbaum, Dennis, 2014. "Fiscal and Monetary Policy Interactions in New Zealand," MPRA Paper 58763, University Library of Munich, Germany.
    6. Chaouech, Olfa, 2012. "La politique de ciblage d'inflation: fondements théoriques et validation empirique [The inflation targeting policy: theoretical and empirical validation]," MPRA Paper 60760, University Library of Munich, Germany, revised 19 Dec 2014.

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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