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Essays on inflation targeting


essays on inflation targeting

between meetings, or six meetings per year. The average annual rates of cpix since 2001 were: 2001 -.6, 2002 -.3, 2003 -.8, 2004 -.3, 2005 -.3. On the time consistency of optimal policy in a monetary economy. Despite the eventual success of IT, the rbnz did initially encounter some difficulties in its implementation. The forecasts or views on future price developments have to be made irrespective of the monetary policy framework that is applied by the authorities. In accordance with this legal basis the inflation target is determined by government in consultation with the Reserve Bank, but the instruments that need to be applied to achieve this target are left to the discretion of the. Alesina, and Summers (1993) found a strong positive relationship between central bank independence and lower inflation. The baseline version of this Phillips curve takes the form where t is inflation, B t1t is the expectation of next periods inflation based on information available at the present time period, (yt ytn) is the (log) difference between actual and natural (or potential) outputor.

After New Zealand in 1990, a cascade of developed and developing countries followed, including relatively large economies, such as Canada and Brazil, and relatively small ones, such as the Czech Republic and Israel. It is now expected of the Bank to fully inform the public of the nature of any exogenous shock, its anticipated impact on inflation, the monetary policy response that will be taken to ensure that inflation returns to the target range and the time horizon. By committing to hold a specific price level, excess inflation has to be compensated with periods of deflation.

Since 1999, quarterly GDP growth has been consistently green donuts essay above 2 and the present business cycle upswing is the longest on record. The output gap term can be motivated by changes in the firms labor costs, whereas the cost-push shock is by changes in the markup that firms charge in excess of their labor costs. If the objective of the central bank is the attainment of price stability, it will always have to take a view on how its current policy stance will affect future price developments. However, provision was made for unscheduled meetings if the need should arise, as was the case with the unscheduled meeting in January 2002. The relatively tight, certainly by the standards of a small open economy, inflation target range of 0 to 2 imposed additional challenges, as the rbnz was occasionally forced to produce large swings in the interest rate in order to meet its objective. Inflation Targeting, inflation targeting is a monetary policy mechanism in which decisions are directly based on the future expected inflation rate relative to the announced target.

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