Exploring the Nexus Between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand’s Experience

RePEc Short ID: pma614
ORCID iD: 0000-0001-5736-361X

Kabukcuoglu, Ayse; Martínez García, Enrique; Soytas, Mehmet A.

doi:10.24149/gwp308

Working Paper

Exploring the Nexus Between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand’s Experience

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;

https://doi.org/10.24149/gwp308