This paper examines stabilisation bias - the difference between the inferior macroeconomic outcomes attained with discretionary monetary policy relative to the ideal that could be attained with commitment policy. The paper works within the linear-quadratic framework and represents the monetary...

The 2002 Policy Targets Agreement (PTA) between the Reserve Bank of New Zealand and the government asks the Reserve Bank to target inflation "over the medium term" rather than over an annual target. This medium term objective shifts inflation targeting towards a "halfway-house" between inflation...

New Zealand data show that the inflation-output relationship is asymmetric. This asymmetry implies that positive demand shocks tend to increase inflation by more than negative demand shocks of similar magnitudes reduce it. An important implication of this asymmetry is that a monetary authority...

This paper introduces a new indicator of core inflation for New Zealand, estimated using a dynamic factor model and disaggregate price data. Using disaggregate price data we can directly compare the predictive performance of our core indicator with a wide range of other ‘core inflation’...

In this paper, measures of the uncertainty surrounding estimates of New Zealand's potential output are used to consider whether the output gap is a useful concept for the monetary authority to base policy actions on. The analysis relies on stochastic simulations of the Reserve Bank of New...

This paper reviews the concept of core inflation, focusing on the alternative interpretations of core inflation as the persistent or generalised element of inflation. The role of a core inflation measure in policy formulation, communication and accountability is also discussed. The paper also...

This paper uses wavelets to develop a core inflation measure for inflation targeting central banks. The analysis is applied to the case of New Zealand – the country with the longest history of explicit inflation targeting. We compare the performance of our proposed measure against some popular...

Simple rules for guiding monetary policy actions have been shown to achieve policy objectives effectively. In many of these simple rules, policy prescriptions depend on the economy's level of potential output. However, potential output is unobservable and is estimated with uncertainty. We...

Some observers have worried that under or over-estimating the output gap may unnecessarily induce tightening or loosening of monetary conditions, causing real fluctuations. To investigate the relationship between the output gap and inflation, we examine models of inflation that do and do not use...

This paper develops a stochastically-based method of measuring core inflation, extending earlier research by Bryan and Cecchetti (1993) and Roger (1995).