This paper defines an efficient rule for monetary policy as one that minimises a weighted sum of output variance and inflation variance. It derives several results about the efficiency of alternative rules in a simple macroeconomic model. First, efficient rules can be expressed as "Taylor rules"...

Recently it has been argued that a monetary policy of nominal income targeting would result in dynamically unstable processes for output and inflation. That result holds in a theoretical model that includes backward-looking IS and Phillips curve relations, but these are rather special and...

Recent research has found evidence of increasing co-movement in CPI inflation rates across industrialised countries. This paper considers whether this increased international co-movement in inflation rates can be attributed to greater global integration of product markets. To examine this...

We show that internationalised production, modelled as trade in intermediate goods, brings the dynamics of a small open economy closer to that observed in the data. We build a stylized new-Keynesian small open economy model and we show that when production is internationalised, movements of...

New evidence from a large survey of over 5300 firms provides insight into price-setting behaviour in New Zealand. There is considerable heterogeneity in behaviour both between and within sectors, and marked asymmetry in the responses to shocks. The median number of prices reviews is twice per...

This paper uses multiple criteria decision making, also termed conjoint analysis,to reveal the preferences of central bank policy-makers at the Reserve Bank of New Zealand. Guided by the Policy Targets Agreement between the Governor of the Reserve Bank and the Minister of Finance, we identify...

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...

The merits of a trans-Tasman currency union have been debated in both New Zealand and Australia. It has been suggested that the New Zealand economy may not behave too differently from at least some of the Australian states, ie they have similar characteristics and they face similar shocks. We...

Transmission mechanisms are the channels through which monetary policy affects macroeconomic variables, such as GDP and inflation. Differences in transmission mechanisms can generate asymmetric behaviour among currency union partners when they experience shocks. This has the potential to widen...

Most textbook models explain the operation of monetary policy in terms of how the central bank influences the market rate of interest by managing the supply of its liabilities relative to the demand for them. Yet some central banks no longer operate that way and, instead, set an interest rate...