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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Exploring the Nexus Between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand’s Experience
Ayse Kabukcuoglu
Enrique Martinez-Garcia
Mehmet A. Soytas
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.


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Ayse Kabukcuoglu & Enrique Martinez-Garcia & Mehmet A. Soytas, Exploring the Nexus Between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand’s Experience, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 308, 01 Mar 2017.
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DOI: 10.24149/gwp308
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