Exploring the Nexus between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand's Experience
20 Pages Posted: 5 May 2017 Last revised: 31 May 2017
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Exploring the Nexus between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand's Experience
Exploring the Nexus between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand's Experience
Date Written: March, 2017
Abstract
We investigate empirically the inflation dynamics in New Zealand, a small open economy and a pioneer in inflation targeting, under various open-economy Phillips curve specifications. Our forecasting exercise suggests that open-economy Phillips curves under standard measures of global slack do not help forecast domestic inflation, possibly indicating measurement problems with global slack itself. In turn, under a stable inflation target we still find that (i) global inflation and (ii) global inflation and oil prices have information content for headline CPI and core CPI inflation over the 1997:Q3-2015:Q1 period and appear to be reliable proxies for global slack in forecasting inflation.
JEL Classification: C21, C23, C53, F41, F47, F62
Suggested Citation: Suggested Citation